September 22, 2019

Free Budgeting Resources to Help You Recover from Bankruptcy

post bankruptcy family budgetOne of the issues that many of my bankruptcy clients have in common has to do with lack of budgeting. Most of us have a general idea about our income and expenses but very few people sit down and write out a formal budget.

When preparing a bankruptcy petition, I use my petition preparation software to create a budget, which, of course, I discuss with my clients. Many of my clients are surprised or even shocked to discover how much they spend each month and how far in the red they are.

In many cases, bankruptcy can help solve this problem by consolidating payments in a Chapter 13, or by eliminating debt (and sometime surrendering property) in a Chapter 7.

Obviously bankruptcy can function to solve an immediate problem but filing a Chapter 7 or Chapter 13 won’t help you if you revert back to the same old bad spending and savings habits after receiving your bankruptcy discharge. [Read more…]

Have You Had Any Success in Recovering from Bankruptcy?

I was recently interviewed by a national magazine about how my clients recover from Chapter 7 bankruptcy.  Some of the tips I discussed during the interview included:

  • asking a friend or relative to add you as an authorized user on a MasterCard or Visa
  • opening a savings and/or checking account at a credit union and establishing a pattern of regular deposits
  • requesting a small loan from that credit union and paying back each installment on time
  • opening a credit account with a gasoline retailer
  • finding a co-signer to open an unsecured credit card account

I explained to the reporter that I am hearing from my clients that large credit card companies are soliciting them for cards as quickly as 6 months post discharge – no surprise in that successfully discharged debtor are a great credit risk, having no debt and no option to file bankruptcy

The reporter, who is a very nice and informed gentleman, would like to speak to anyone who has had success in re-establishing credit after Chapter 7.  If you would be interested in talking to this reporter, please email me using the form on this blog and I’ll put you in touch with him.

How to Repair Your Chex Systems Report After a Bankruptcy Discharge

About 25% of the bankruptcy clients I represent have bounced checks due to insufficient funds.  While there can be a criminal law violation if you bounce a check, often merchants do not prosecute unless the amount is significant.  Even if there are no criminal implications, a bad check is most certainly a debt that needs to be included in your bankruptcy filing.

Many merchants use check reporting services like Chex Systems.  Another check reporting service I see frequently is called Telecheck.    These companies are credit reporting agencies just like Equifax or Experian and merchants use these companies when deciding whether or not to accept a check from a customer.

My Bankruptcy Law Network colleague, San Diego bankruptcy lawyer Michael Doan has written a very helpful post that sets out the specific steps that you need to take when you include a Chex Systems or Telecheck debt in your bankruptcy.   You can click on the link to read Michael’s timely post.  Michael notes that the check reporting agencies sometimes do not update their databases to show a “zero balance, discharged in bankruptcy” on accounts that are included in bankruptcy.

A Chex Systems file that show outstanding debt will make it very difficult, if not impossible, to obtain a new bank or checking account after bankruptcy.  If you take the necessary steps to clear your check reporting file, you greatly improve your chances.

Michael’s advice clearly applies once you have received a discharge in Chapter 7 or Chapter 13.   This raises a question in my mind as to what a Chapter 13 debtor can or should do during a five year Chapter 13 plan.   I wonder if a Chapter 13 debtor could argue that a check reporting agency’s refusal to delete a reference to an outstanding balance could be considered as a violation of the automatic stay.  I will pose this question to my BLN colleagues and update this blog post.

Recovering from bankruptcy

One of the most frequent questions I am asked has to do with recovering from bankruptcy. There is no hard and fast answer to this problem, but here are my observations:

Recovering from bankruptcy has become much easier in recent years than it was fifteen years ago.

  1. Many lenders look to a potential borrower’s credit score, as opposed to looking at credit reports for specific red flags. Years ago, lenders had their own “scoring system” – the mere existence of a bankruptcy could result in turn down. Now, many lenders rely on the credit bureaus score which does not specifically identify whether someone has a bankruptcy. Thus, if you can get your credit score up, your bankruptcy will have no effect whatsoever for those lenders.
  2. Many lenders realize that you are actually a far better credit risk after filing bankruptcy than before. After all, who would you rather loan money – someone who has $80,000 in credit card debt who might file bankruptcy tomororw, or someone who just filed, has no debt and legally cannot file for 6 years?
  3. If you work at restoring your credit after bankruptcy, you can get your credit score up within 6 months to a year.
  4. Although the exact algorithms used by the credit bureaus are secret, it does appear that the weight (importance) assigned to a bankruptcy filing decreases as time goes by from your date of discharge.
  5. A good first step to restoring credit is to get copies of your credit reports and challenge any entries which still show debt owing. Remember, credit reports are basically a history of your credit life. A bankruptcy can discharge your legal obligation to pay but it cannot change history. A credit history showing a zero balance and a bankruptcy discharge is better than a credit history showing (incorrectly) thousands of dollars of outstanding debt and a bankruptcy. Remember, creditors who have been discharged in bankruptcy are not going to make correcting your credit report a priority – you need to take an active role in this process.
  6. Another helpful step is to find a secured credit card that becomes unsecured after four or five months of steady and timely payment. You can find secured credit card information on the Internet.

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