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Whether your're thinking about filing bankruptcy, trying to figure out how to avoid filing bankruptcy, or just looking for ways to improve your credit, your credit report is the most important piece of information "on you."
Sadly, it's also something to which most consumers have little control or access. The bureaus decide what goes in and what comes out. It's difficult and time-consuming to correct errors.
My bankruptcy clients and I spend a lot of time going over the information in these reports. It's a bit of catharsis and a bit of triage. We all have our skeletons, trust me. Don't be ashamed of yours. Credit reports can be bad trips down memory lane. They can be frustrating reminders of bad decisions. They can be infuriating evidence of stolen and trashed identity.
Whatever they are, you should never ignore the information contained in your credit report.
I sometimes meet clients who have purchased credit monitoring from a bureau or credit card issuer. I hate to see people waste money, so I always make a point of telling them that there is no reason to pay anyone to do something that be done online, for free, without a hassle.
Here's my how to:
Step One: Consider freezing your credit with each of the three credit bureaus Experian, Equifax, and TransUnion. Freezing your credit means that you pay the bureau $3 to "freeze" access to your file, and they send you a PIN that you must have anytime you wish to "thaw" your file. You'll need to thaw the file whenever you apply for a credit card or when you wish to give someone (a potential employer perhaps) access to your file. This is great for consumers because it means that they are protected from identity fraud, know exactly who's accessing their file, and BONUS are safe from the lure of the department store charge card come-on at check out. (It's hard to impulse-open a Macy's or Target account when you've got to go home to get your PIN number before you can pull the trigger. Instant discipline. Yay!)
Step Two: Pull your credit report from each bureau once a year for free using AnnualCreditReport.com. The way to do this is to pull from one bureau this month, another bureau in four months, and the final bureau in 8 months. Yes, you'll need that PIN number if you've frozen your file. Avoid any website that offers free credit reports other than AnnualCreditReport.com AnnualCreditReport.com is the website authorized by the Feds to provide free annual credit reports as ordered by Congress. All of the other websites have some variation on a scam that will enlist you in monthly monitoring, credit score watching and other wastes of time and money that you don't need.
Side Question. Do you need your FICO score? We'll you can get it, but you'll have to pay extra. And I'm not sure the number amounts to much of anything unless you're planning to buy a house in the foreseeable future. Don't judge yourself by that number gang. Life is too short. Pay attention to paying your bills on time, making minimum payments, avoiding default, and keeping your debt ratio low.
Step Three: Look at your reports. Check for errors. Look for mistakes, false reports, failures to mark debts as paid, etc. You may have a violation of the Fair Credit Reporting Act. Call for more information if you think you do.
Friday, November 13, 2009
Tuesday, November 10, 2009
Days of easy credit....? Going, going, went.
Get ready to pay cash for more things next year. While you've been sorting through the cards in your wallet looking for the one with the lowest balance or lowest interest rate, your credit card company has been sorting through your account history.
Big credit's new year's resolution for 2010? It's to see a lot less of you.
In recent years, your credit card company has had to write off around 10% of the debt it owns. This % is not good for their business model. In recent years, big credit made up the difference by charging fees and rates that would make Tony Soprano envious. That party ends February 2010 with the new Federal regulations that will keep them from being able to extort their customers.
Consequently, it's time for big credit to change its business model and eliminate the chafe (hint: that's you).
I write this because as a bankruptcy attorney, I sometimes meet with clients who still have 'some' credit available on their cards. These folks are unwilling to file bankruptcy because they can't imagine life without the plastic 'safety' net. It's scary to contemplate; I agree.
But we are now at the point when consumers should see the writing on the wall. It's time to start asking if plastic is a 'safety' net, or a fishing net?
The days of easy credit are over. We will not soon return to the days of signature applications approved without income verification.
If your credit is good and you've got control over the plastic, congratulations. If you're hovering on the precipice, waking up in the middle of the night worrying about minimum payments and overnight payment addresses, we should talk.
If you don't get rid of the cards yourself, your credit card company may be planning to do it for you. And no, they won't do it in a way that preserves your credit score.
Filing bankruptcy will give you a fresh start without the debt lashed around your neck. You'll be given the opportunity to rebuild and renew.
If you're weighing the option of filing bankruptcy or sticking it out by paying minimum balances, take comfort in the knowledge that those who file bankruptcy will not be alone with their debit cards and checkbooks when big credit gets done jettisoning its customers. The difference will be that those who stick it out paying minimum balances will be at the mercy and whim of profit margins and big credit.
Those who talk to a bankruptcy attorney who will analyze their financial situation to determine if filing bankruptcy will provide a fresh start will be on their way out of this mess.
Check out this article published November 10, 2009 in the New York Times for more information about big credit's plans for profitability.
Big credit's new year's resolution for 2010? It's to see a lot less of you.
In recent years, your credit card company has had to write off around 10% of the debt it owns. This % is not good for their business model. In recent years, big credit made up the difference by charging fees and rates that would make Tony Soprano envious. That party ends February 2010 with the new Federal regulations that will keep them from being able to extort their customers.
Consequently, it's time for big credit to change its business model and eliminate the chafe (hint: that's you).
I write this because as a bankruptcy attorney, I sometimes meet with clients who still have 'some' credit available on their cards. These folks are unwilling to file bankruptcy because they can't imagine life without the plastic 'safety' net. It's scary to contemplate; I agree.
But we are now at the point when consumers should see the writing on the wall. It's time to start asking if plastic is a 'safety' net, or a fishing net?
The days of easy credit are over. We will not soon return to the days of signature applications approved without income verification.
If your credit is good and you've got control over the plastic, congratulations. If you're hovering on the precipice, waking up in the middle of the night worrying about minimum payments and overnight payment addresses, we should talk.
If you don't get rid of the cards yourself, your credit card company may be planning to do it for you. And no, they won't do it in a way that preserves your credit score.
Filing bankruptcy will give you a fresh start without the debt lashed around your neck. You'll be given the opportunity to rebuild and renew.
If you're weighing the option of filing bankruptcy or sticking it out by paying minimum balances, take comfort in the knowledge that those who file bankruptcy will not be alone with their debit cards and checkbooks when big credit gets done jettisoning its customers. The difference will be that those who stick it out paying minimum balances will be at the mercy and whim of profit margins and big credit.
Those who talk to a bankruptcy attorney who will analyze their financial situation to determine if filing bankruptcy will provide a fresh start will be on their way out of this mess.
Check out this article published November 10, 2009 in the New York Times for more information about big credit's plans for profitability.
Watching those late night commercials again?
Beware, beware of commercials you see offering to 'settle' your debt for pennies on the dollar. I'm sorry to say that there is just no such thing.
The so-called debt relief agencies offer nothing more than a game of you giving them the money you were giving to your credit cards, and them giving you the run-around.
They have no magical power to make AMEX or Mastercard, or Discover, or anyone, settle your debt. When they say that consumers settle for pennies on the dollar, they really mean that one consumer out of hundreds managed to settle for so little. How do I know this? Because the Federal Trade Commission has received thousands of complaints from consumers saying that they were misled by these companies.
Remember failing to make minimum payments on your cards means you are in default. Being in default means you will be sued. There is no special exception for folks who have signed on with Someone and Somebody's fly-by-night-debt relief service.
There just isn't.
I've met with too many clients recently who have been tempted to call. Some have called, and been smart enough to 'hear' the fine print in the phone pitch and hang up.
Yes, your credit card company is trying very hard to screw you right now. This might look like a decreased credit limit, a higher interest rate, a stratospheric annual fee, a nasty letter, etc. They are working hard to get as much out of as many people before the new Federal regulations take hold next year. Apparently it's happening to so many Americans that even the Wall Street Journal is warning its readers (!) about it. Check out this article published November 8, 2009.
And yes, you need to find a solution that addresses your whole financial situation. Not just one aspect of it. Call an attorney who will be your advocate, and who will analyze your big picture.
The so-called debt relief agencies offer nothing more than a game of you giving them the money you were giving to your credit cards, and them giving you the run-around.
They have no magical power to make AMEX or Mastercard, or Discover, or anyone, settle your debt. When they say that consumers settle for pennies on the dollar, they really mean that one consumer out of hundreds managed to settle for so little. How do I know this? Because the Federal Trade Commission has received thousands of complaints from consumers saying that they were misled by these companies.
Remember failing to make minimum payments on your cards means you are in default. Being in default means you will be sued. There is no special exception for folks who have signed on with Someone and Somebody's fly-by-night-debt relief service.
There just isn't.
I've met with too many clients recently who have been tempted to call. Some have called, and been smart enough to 'hear' the fine print in the phone pitch and hang up.
Yes, your credit card company is trying very hard to screw you right now. This might look like a decreased credit limit, a higher interest rate, a stratospheric annual fee, a nasty letter, etc. They are working hard to get as much out of as many people before the new Federal regulations take hold next year. Apparently it's happening to so many Americans that even the Wall Street Journal is warning its readers (!) about it. Check out this article published November 8, 2009.
And yes, you need to find a solution that addresses your whole financial situation. Not just one aspect of it. Call an attorney who will be your advocate, and who will analyze your big picture.
Tuesday, October 13, 2009
New Median Income Numbers
The nation is a bit poorer these days. If you're considering whether or not filing bankruptcy is a solution for your family you should know that this fact will soon impact you. You may wish to before the end of the month when new median income numbers take hold.
These new numbers for median income apply to cases filed after November 1, 2009. The new numbers are LOWER overall by a few hundred dollars annually, and as a result you may not be able to file Chapter 7 if your median income is too high.
Calculation of median income is one of the most important things your attorney will do for you. The numbers have to survive the scrutiny of the Trustee and your creditors. Hire someone you trust to do this calculation for you. You'll want to know that you won't be facing the threat of dismissal or conversion because your means test contains errors.
Now, here's the skinny:
After November 1, 2009, to file Chapter 7, or to file a Chapter 13 with a 3 year payment plan, the median income for your household size must be lower than the number listed below.
Household size of 1 --$40,691 (was $40,760).
Household size of 2 --$55,245 (was $54,054).
Household size of 3 --$61,104 (was $61,959).
Household size of 4 --$68,502 (was $71,554).
Some sources of income count--unemployment and social security do not.
There are other wrinkles and pitfalls to watch out for. Watch out.
These new numbers for median income apply to cases filed after November 1, 2009. The new numbers are LOWER overall by a few hundred dollars annually, and as a result you may not be able to file Chapter 7 if your median income is too high.
Calculation of median income is one of the most important things your attorney will do for you. The numbers have to survive the scrutiny of the Trustee and your creditors. Hire someone you trust to do this calculation for you. You'll want to know that you won't be facing the threat of dismissal or conversion because your means test contains errors.
Now, here's the skinny:
After November 1, 2009, to file Chapter 7, or to file a Chapter 13 with a 3 year payment plan, the median income for your household size must be lower than the number listed below.
Household size of 1 --$40,691 (was $40,760).
Household size of 2 --$55,245 (was $54,054).
Household size of 3 --$61,104 (was $61,959).
Household size of 4 --$68,502 (was $71,554).
Some sources of income count--unemployment and social security do not.
There are other wrinkles and pitfalls to watch out for. Watch out.
Monday, October 5, 2009
Your mortgage--filing bankruptcy and your credit score
Clients sometimes ask how filing bankruptcy will impact their credit scores. I've found that this question most likely comes when a client is deciding whether to file bankruptcy and surrender their house, do a short-sale on their property, or try to stick it out long enough for their pending loan modification to be finalized.
Well someone has been crunching numbers, and has given us some sort of answer. Kenneth R. Harney a Washington Post columnist wrote a piece on September 12, 2009 published here.
I'll give you the summary, but I want you to read this entire blog post because I'll respond to what I think you'll be thinking when you read the summary. I don't question the validity of the Harney report. I do want you to be an informed consumer, and I think you need to talk to an attorney who will go over the entire picture of your debt and advise you.
Here's the skinny on the Harney piece:
Mr. Harney looked at a report published by VantageScore Solutions which is an entity created by the three bureaus. VantageScore Solutions is apparently used by many mortgage companies and banks to determine whether a consumer is 'mortgage-worthy.' (This it is NOT your FICO score.)
The report says that a load modification directly with your lender where you agree to include your arrearages and penalties in the principal, and then pay them back over time may help your score.
Loan modifications involving property that is underwater or negative equity appear to be score-neutral. (These are the Obama modifications.)
Both of these findings are good news for folks who can afford to keep their property, and do not need to consider selling or surrendering! And these numbers are not really a surprise.
The report also says that filing bankruptcy will send your credit score down an average of 350 points. Yikes. This finding may terrify you, but it doesn't surprise me at all. Bankruptcy still may be a better option for you--please keep reading and I'll explain.
The surprise is that a short-sale and a foreclosure have about the same impact on consumers' scores. Both will send your credit score down by 125-145 points. This finding is critically important for the folks who can't afford their property and who are looking down the barrel of an extremely tough decision.
This means regardless of whether you go through the gray-hair-and-wrinkle-inducing short sale, or if your property is foreclosed, your credit score is going down. I sometimes meet clients who say that their real estate agent suggested that they'd be better off if they agreed to short-sell the property rather than allowing the property to foreclose. Guess who still gets a sales commission on the short-sale?
I have always questioned that wisdom because of the nature of the short sale--it's never a sure thing. Sometimes the bank will forgive the deficiency involved in a short sale, and sometimes it won't And in Georgia, guess who may liable for the deficiency between the amount of the short-sale and the balance on the mortgage unless it's forgiven?
If there is no real difference in impact on your credit score between short-selling and foreclosing--why go through the pain? One may as well wait it out until foreclosure day. (NOTE--Please don't call me next month and say that I told you on my blog to wait until foreclosure--I'm telling you to talk to an attorney.)
And this is why I wanted you to keep reading (thank you).
Bankruptcy is a holistic approach to problem solving. We don't just solve one problem with one creditor. If the only problem a client has is mortgage payments, and if there are no unhappy creditors, and no unpaid debts, I suppose it is possible that loan modification is a better alternative than considering filing bankruptcy.
What I see most often is that credit scores--FICO credit scores--are annihilated because there are many creditors and many debts. Dings will impact your credit reports and FICO score for 7 years. The statute of limitation for the collection of unpaid credit card debt in Georgia is six years from default. Yes, that means that you will be harassed and sued, and garnished for a long, long time.
Filing bankruptcy will appear on your credit report for as long as 10 years. But once discharged you cannot be sued, and you are not obligated to pay back the debt. This means that you can file bankruptcy and spend the next several years after discharge rebuilding your credit score.
Pick the number of years and gray-hairs with which you are comfortable, and then call me.
Well someone has been crunching numbers, and has given us some sort of answer. Kenneth R. Harney a Washington Post columnist wrote a piece on September 12, 2009 published here.
I'll give you the summary, but I want you to read this entire blog post because I'll respond to what I think you'll be thinking when you read the summary. I don't question the validity of the Harney report. I do want you to be an informed consumer, and I think you need to talk to an attorney who will go over the entire picture of your debt and advise you.
Here's the skinny on the Harney piece:
Mr. Harney looked at a report published by VantageScore Solutions which is an entity created by the three bureaus. VantageScore Solutions is apparently used by many mortgage companies and banks to determine whether a consumer is 'mortgage-worthy.' (This it is NOT your FICO score.)
The report says that a load modification directly with your lender where you agree to include your arrearages and penalties in the principal, and then pay them back over time may help your score.
Loan modifications involving property that is underwater or negative equity appear to be score-neutral. (These are the Obama modifications.)
Both of these findings are good news for folks who can afford to keep their property, and do not need to consider selling or surrendering! And these numbers are not really a surprise.
The report also says that filing bankruptcy will send your credit score down an average of 350 points. Yikes. This finding may terrify you, but it doesn't surprise me at all. Bankruptcy still may be a better option for you--please keep reading and I'll explain.
The surprise is that a short-sale and a foreclosure have about the same impact on consumers' scores. Both will send your credit score down by 125-145 points. This finding is critically important for the folks who can't afford their property and who are looking down the barrel of an extremely tough decision.
This means regardless of whether you go through the gray-hair-and-wrinkle-inducing short sale, or if your property is foreclosed, your credit score is going down. I sometimes meet clients who say that their real estate agent suggested that they'd be better off if they agreed to short-sell the property rather than allowing the property to foreclose. Guess who still gets a sales commission on the short-sale?
I have always questioned that wisdom because of the nature of the short sale--it's never a sure thing. Sometimes the bank will forgive the deficiency involved in a short sale, and sometimes it won't And in Georgia, guess who may liable for the deficiency between the amount of the short-sale and the balance on the mortgage unless it's forgiven?
If there is no real difference in impact on your credit score between short-selling and foreclosing--why go through the pain? One may as well wait it out until foreclosure day. (NOTE--Please don't call me next month and say that I told you on my blog to wait until foreclosure--I'm telling you to talk to an attorney.)
And this is why I wanted you to keep reading (thank you).
Bankruptcy is a holistic approach to problem solving. We don't just solve one problem with one creditor. If the only problem a client has is mortgage payments, and if there are no unhappy creditors, and no unpaid debts, I suppose it is possible that loan modification is a better alternative than considering filing bankruptcy.
What I see most often is that credit scores--FICO credit scores--are annihilated because there are many creditors and many debts. Dings will impact your credit reports and FICO score for 7 years. The statute of limitation for the collection of unpaid credit card debt in Georgia is six years from default. Yes, that means that you will be harassed and sued, and garnished for a long, long time.
Filing bankruptcy will appear on your credit report for as long as 10 years. But once discharged you cannot be sued, and you are not obligated to pay back the debt. This means that you can file bankruptcy and spend the next several years after discharge rebuilding your credit score.
Pick the number of years and gray-hairs with which you are comfortable, and then call me.
Taxes and bankruptcy
One of the most important conversations you will have with your bankruptcy attorney is the discussion about tax obligations you may have with the IRS and the Georgia Department of Revenue (GDOR).
Unpaid back taxes are painful; many consumers live in (justified) fear of the power of the IRS to levy bank accounts, place liens on property, and generally bring misery to tax payers who have problems.
But you should know that there is a possibility that unpaid income taxes will be discharged when you file either Chapter 7 or 13 bankruptcy.
It is very important that your bankruptcy attorney understands what types of taxes are dischargeable and can analyze your specific situation to determine if the tax debt you owe qualifies. The general rule is that the unpaid taxes must be older than years old, and you need to have been a 'good tax filer' since the years you incurred the debt. (Believe me, there's much more analysis that goes into this general rule--but I don't want to bore you!)
If you are an employer, or are self-employed, note that you can't discharge unpaid medicare and social security taxes.
And even if the are not discharged, you will be able to pay the IRS and the state back over the life of your Chapter 13 plan. Yes, it's true--your attorney will include the non-dischargeable tax debt in the plan. The Chaper 13trustee will pay part of your Chapter 13 plan payment to the IRS or GDOR on your behalf--no fuss, no muss.
Here's another silver lining--the non dischargeable tax debt you owe is considered as a factor in your means test. This means that your obligation to pay back taxes might help you qualify for filing Chapter 7 bankruptcy. Ask me why this can be a very good thing.
Unpaid back taxes are painful; many consumers live in (justified) fear of the power of the IRS to levy bank accounts, place liens on property, and generally bring misery to tax payers who have problems.
But you should know that there is a possibility that unpaid income taxes will be discharged when you file either Chapter 7 or 13 bankruptcy.
It is very important that your bankruptcy attorney understands what types of taxes are dischargeable and can analyze your specific situation to determine if the tax debt you owe qualifies. The general rule is that the unpaid taxes must be older than years old, and you need to have been a 'good tax filer' since the years you incurred the debt. (Believe me, there's much more analysis that goes into this general rule--but I don't want to bore you!)
If you are an employer, or are self-employed, note that you can't discharge unpaid medicare and social security taxes.
And even if the are not discharged, you will be able to pay the IRS and the state back over the life of your Chapter 13 plan. Yes, it's true--your attorney will include the non-dischargeable tax debt in the plan. The Chaper 13trustee will pay part of your Chapter 13 plan payment to the IRS or GDOR on your behalf--no fuss, no muss.
Here's another silver lining--the non dischargeable tax debt you owe is considered as a factor in your means test. This means that your obligation to pay back taxes might help you qualify for filing Chapter 7 bankruptcy. Ask me why this can be a very good thing.
Wednesday, September 9, 2009
No luck modifying your mortgage either? Join the club.
Are you one of the millions of Americans who have been trying to get your mortgage company to modify your mortgage this year?
There has already been tons of press on how unsuccessful most loan modifications have been.
We know that most people were seeking modifications because their exotic mortgages turned into exotic nightmares of variable interest rates and balloon payments. We know that most are now seeking to modify because of job loss, or wage reduction. These people have fixed rate mortgages that they could otherwise afford but for their loss of income.
And we are now finding out more information about why home owners' applications are being denied.
Here's a link to an NPR story that investigates behind the scenes at a Bank of America call center that is dedicated to answering calls from people seeking loan modification.
My take:
1. Banks are still grappling with digesting massive quantities of data gathered by mortgage originators that sometimes collected very sketchy data. In addition to that the banks are intaking new data from home owners and having to figure out how to integrate, validate, and analyze the new and old data. That takes time, money, and training. A certain amount of patience is warranted.
2. Banks have attempted to streamline the decision making process by writing programs that tell phone bank operators whether a caller 'qualifies' for a mortgage modification. As the NPR story points out--the program makes mistakes. It may have made a mistake on your application. The call center employees do not necessarily have the experience or training to know when the system has made an error. They are also not necessarily empowered to override the system. You should call back, be persistent, patient, and polite.
3. The Treasury is issuing periodic report cards on each of the banks who are modifying mortgages. Less than 20% of the applications to modify are granted. And to me, that means that you should be looking for Plan B.
4. If you are trying to modify your mortgage, know that your bank is going to look at your debt load (which can be minimized or eliminated by filing bankruptcy) and your income. You are only going to qualify if the bank sees that your debt is low enough and your income is high enough to support the modification.
5. According to the NPR story, 2 million people are going to lose their homes to foreclosure this year--and that is the most since the Great Depression. I stand behind the proposition that you stand a better chance of keeping your home if you talk to a bankruptcy attorney who will help you decide the best course of action. Don't wait until your retirement and savings accounts are gone. Don't wait until your so far behind on the mortgage that there is no way of catching up.
There has already been tons of press on how unsuccessful most loan modifications have been.
We know that most people were seeking modifications because their exotic mortgages turned into exotic nightmares of variable interest rates and balloon payments. We know that most are now seeking to modify because of job loss, or wage reduction. These people have fixed rate mortgages that they could otherwise afford but for their loss of income.
And we are now finding out more information about why home owners' applications are being denied.
Here's a link to an NPR story that investigates behind the scenes at a Bank of America call center that is dedicated to answering calls from people seeking loan modification.
My take:
1. Banks are still grappling with digesting massive quantities of data gathered by mortgage originators that sometimes collected very sketchy data. In addition to that the banks are intaking new data from home owners and having to figure out how to integrate, validate, and analyze the new and old data. That takes time, money, and training. A certain amount of patience is warranted.
2. Banks have attempted to streamline the decision making process by writing programs that tell phone bank operators whether a caller 'qualifies' for a mortgage modification. As the NPR story points out--the program makes mistakes. It may have made a mistake on your application. The call center employees do not necessarily have the experience or training to know when the system has made an error. They are also not necessarily empowered to override the system. You should call back, be persistent, patient, and polite.
3. The Treasury is issuing periodic report cards on each of the banks who are modifying mortgages. Less than 20% of the applications to modify are granted. And to me, that means that you should be looking for Plan B.
4. If you are trying to modify your mortgage, know that your bank is going to look at your debt load (which can be minimized or eliminated by filing bankruptcy) and your income. You are only going to qualify if the bank sees that your debt is low enough and your income is high enough to support the modification.
5. According to the NPR story, 2 million people are going to lose their homes to foreclosure this year--and that is the most since the Great Depression. I stand behind the proposition that you stand a better chance of keeping your home if you talk to a bankruptcy attorney who will help you decide the best course of action. Don't wait until your retirement and savings accounts are gone. Don't wait until your so far behind on the mortgage that there is no way of catching up.
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