Archive for Bankruptcy
Bankruptcy – A Rough Road Ahead
Posted by: | CommentsThe Difference Between Default and Bankruptcy:
Rarely does a person file for bankruptcy without already having defaulted on at least one credit account. So, if a person defaults on an account, meaning they have failed to repay it as agreed, they have taken the first slippery step toward bankruptcy. That doesn’t mean the person will declare bankruptcy, but they are a step closer to it. A default occurs with only one account. The problem is that when a person has serious difficulty with one debt, they often are struggling with their other debts, as well.
Bankruptcy is among the worst things that can appear in your credit report. When you file for bankruptcy, you are telling all of your lenders that you will not be able to pay them in full, or at all. As a result, it will be very difficult, if not impossible to qualify for new credit while the bankruptcy appears on your credit report.
Considering Bankruptcy:
A bankruptcy showing up on your credit is considered a very negative occurrence in regards to your credit scores and one thing is for certain; you can expect a rather large drop in your current scores. Typically, someone with a score in the mid 700s might see their score fall by 100 points or more. Listed below are a few things to consider before filing for bankruptcy.
- Do your homework. There are several things to think about when considering bankruptcy, such as choosing the type of bankruptcy (Chapter 7 or 13) that’s right for you based on your ability to repay your debts, the type of debts you have, and the impact that bankruptcy will have on your future financial picture.
- Consult with a bankruptcy attorney or a reputable debt counseling service. Because bankruptcy is an important decision that will affect many aspects of your life for years to come, it is highly recommended that you consult with a bankruptcy attorney. You may also want to consult a “legitimate” non-profit debt counseling service as an alternative to bankruptcy, as they may be able to arrange a special debt repayment plan with your creditors. Be careful, however, as there are many dishonest debt management companies that charge high fees and provide very little, if any, value toward resolving your credit problems.
Bankruptcy and How It Affects Your Credit:
One of the great myths about bankruptcy is that it erases bad credit history. It doesn’t.
A bankruptcy will always be considered a very negative event by your credit scores. How much of an impact it will have on your scores will depend on your entire credit profile. For example, someone that had spotless credit and very high credit scores could expect a huge drop in their scores. On the other hand, someone with many negative items already listed on their credit report might only see a modest drop in their scores.
Another thing to note is that the more accounts included in the bankruptcy filing, the more of an impact on your score.
While there are many things to consider when considering filing for bankruptcy, you can expect it to impact your score for as long as the bankruptcy is listed on your credit report.
Thinking About Filing Bankruptcy?
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Question: I am currently 30 years old and a stay at home mom with 1 kid and 1 on the way. I do not own anything in my name. I plan on going back to work next year by March 2010. I had a credit score of 700 about 3 years ago. I lost my job about a year ago and racked up about $14K in credit card and medical bills. My credit score is probably not that great anymore. My boyfriend does not make enough money to pay the credit cards any longer. We were going to start next month and NOT pay them at all. We were paying the minimums before but need the money to eat and feed the kids now. We are thinking about filing bankruptcy but not sure if it’s the way to go. Here are my questions:
1) Do you think BK is the way to go?
2) Will the stores come and take my belongings if I file for BK (such as the television)?
3) Is it better to file for BK after filing for tax return? (So they don’t take the refund)
4) Will it be a problem trying to find a job in the accounting/finance field if I file for BK? (As some companies may do credit checks.)
5) Do you think I should talk to the credit card companies before I go filing for BK? I doubt they would really help me though.
Behind On Credit Card Payments?
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Job losses Are Going To Affect Credit Card Payments…
The news is riddled lately with massive lay-offs of employees. It’s also taking anywhere from 3 to 6 months to get another job, and even then, the salary may not be as much as you were previously making. What is going to happen in the interim? Do you have enough saved to pay your rent or your house payments, along with those never ending credit card bills? More than likely, you don’t. What is going to be the first thing to go? Yup….you guessed it, the credit cards.
What Happens If You Can’t Make Your Payments?
If you let the bills go unpaid for too long, they’re going to end up in “charged-off” status with the original creditor and then the account is going to be sold to a collection company. The collections agency will then pursue payment of the account more aggressively. This is considered a very negative occurrence for your credit scores, short of filing for bankruptcy.
If the balance is large enough, the creditor may consider taking you to court and obtaining a judgment against you. Not only will the judgment be recorded against any property that you own in that county, but the judge can also order that your wages be garnished from your employer, or they can order that your bank account be levied to pay for the debt. If you’ve ever had this happen to you, it can be devastating to find out your bank account has been sucked dry and whatever money you did have in the account, is now gone forever.
A judgment is also going to become a public record item which will stay on your credit report for 7 years, and interest is going to continue to accrue until the account has been paid.
What Are Your Options?
If you know you’re not going to be able to make your credit card payments anytime in the near future, you have a few options:
Contact your creditors, explain the situation and see if they can work out an arrangement with you, on terms that you’ll be able to meet financially. Make sure to talk to them about the possibility of not reporting the payment reduction to the credit bureaus, so your account does not reflect late payments.
Contact a bankruptcy attorney and find out if you will be able to pass the 2005 Bankruptcy Means Test, in order to qualify for a Chapter 7 bankruptcy, which is a discharge of all unsecured debts.
If you do not qualify for a Chapter 7 bankruptcy, discuss a Chapter 13 bankruptcy with your attorney and find out what the repayment terms will be.
Contact a legitimate debt counseling company. The company you choose should counsel you regarding your debt and finances, as well as work with your creditors to reduce your interest rates and set up a structured re-payment plan to pay off all of your debt within a certain period of time.
Which Has Less Negative Effect On Your Credit….BK 13 or Debt Counseling?
If you do not qualify for a Chapter 7 bankruptcy, which a complete discharge of your unsecured debts, you might want to consider repayment arrangements through a debt counseling company versus filing for Chapter 13 bankruptcy.
Both of these options require that you repay your debt for cents on the dollar, and both are accomplished in a set period of time. You’ll need to compare both options and weigh the savings between each, but if the difference is not significant, then as far as your credit is concerned, you’re better off with a debt counseling company.
If you know you’re not going to be able to make your credit card payments, contact a debt counseling company immediately and find out what they can do for you. If they can work out arrangements with your creditors before you ever get behind, your credit report may never feel the effects of your situation. That is the ultimate goal.
By filing for Chapter 13 bankruptcy, this is about as negative as it gets on your credit, not to mention that the public record stays on your credit report for 10 years.
For more tips on what to do if you can’t make your credit card payments, visit: http://RepairCreditTrauma.com
Tighter Credit Reporting Required for Bankruptcy Victims
Posted by: | CommentsCredit standards have tightened to the point that you now have to have, at the very minimum, a 680 
credit score to obtain financing for a mortgage or home equity loan. If you don’t have that kind of score or better, then you’re going to be denied credit, as millions of Americans have found out first hand in recent months.
Basically, we’re all counting on the fact that the three major credit reporting agencies are reporting accurate information, in order to ensure you have the highest credit score you can obtain based on your situation.
