Archive for the ‘Bankruptcy’ Category
Rebuilding Your Credit After Bankruptcy
August 20th, 2009 | 
Author: Filing for bankruptcy is a serious blow to anyone’s credit; however, it is possible to rebuild your credit standing within a reasonable amount of time. The amount of time it takes to rebuild your credit varies from person to person; but, for for most who file, bankruptcy is actually the first step on the road to rebuilding your credit standing rather than the last.
When deciding to file bankruptcy, it is important to understand that Bankruptcy can remain on your credit report for up to 10 years. However, when you consider that a collection lawsuit, repossession, or foreclosure will also remain on your credit report for the same period of time; bankruptcy may be the best option since the bankruptcy eliminates your obligation to the underlying debt. This is an important consideration when you consider that in a repossession, you will be responsible for the remaining outstanding balance. Moreover, although a bankruptcy may stay on your credit report for 10 years, it will only take a few years after a bankruptcy discharge to rebuild your credit.
Step 1: Filing Bankruptcy
Believe it or not, the bankruptcy discharge itself, which liquidates all, or most of your actual debt, improves your income-to-debt ratio instantly. This, by itself, will help to increase your credit score.
Step 2: Obtain Credit and Use It
After your discharge, you will receive credit card and other solicitations fairly shortly. Most of these will be high-interest, low limit credit cards. Normally, I would recommend that you avoid these offers like the plague; however, it is a simple truth that you have to be in debt to establish credit. Therefore, I recommend that you obtain one of these cards and actually use it, sparingly.
Bankruptcy eliminates your past credit history. Therefore, you must establish a new credit history to rebuild your credit score. By using the card and making payments, you will establish a new credit history. Your use of credit is reported to the credit bureaus and will help accomplish this goal.
Step 3: Stay Current and Lean From Your Bankruptcy Experience
I hope that Bankruptcy was a learning experience. Follow these rules when using your credit card.
- Do not use your credit card if you do not have the money to repay it. A credit card is a tool; not a crutch.
- Use your credit card only for emergencies or large necessities and don’t use it again until the balance is paid.
- Never carry a balance on your card more than two months of disposable income.
- Pay more than your minimum balance. If you cannot afford to pay more than your minimum balance, then you can’t afford a credit card and should wait to try to rebuild your credit.
- Never transfer a balance unless you actually intend to close your account with the card you are transferring. Most people get in trouble by transferring balances and then running up a new balance on their old card. GET RID OF IT!
- Do not get a “store card.” The cards you get from Home Depot, Macy’s, and Target have interest rates that usually exceed 30% and cannot be used anywhere else. Stay away from them!
- YOU DON’T NEED MORE THAN ONE CREDIT CARD; EVER!
As time goes by, you will begin to rebuild your credit score. You can eventually replace the high interest credit card with one that has better terms. However, don’t start overextending yourself. Learn from your bankruptcy experience!
Step 4: Avoid Credit Traps
Credit card companies are sneaky. They will offer all sorts of “offers” such as “90 days same as cash” or “no interest for six months.” However, don’t fall for these traps. Ninety percent of consumers do not repay the principal balance within the “interest free” period and if you have even $1 left owed on the principal, you will be charged interest on the entire balance. For example, if you purchase a dishwasher for $500 with no interest for six months. At the end of six months you still owe $5.00; the credit card company will then charge you the full six months interest on the entire $500 purchase.
Step 4: Monitor Your Credit Report
As a Massachusetts resident, you are entitled to 2 free copies of your credit report from each of the credit reporting agencies per year. Therefore, you should monitor your credit report every six months. If you find an error on your credit report, or find that a creditor that was discharged in bankruptcy is still reporting, you should report the error with the credit reporting company. If you still have problems fixing the error, you should contact your bankruptcy lawyer who will probably be able to help you.
This is by no means an exhaustive list; but just a guide. Credit is a two edged sword and should be used wisely. If you obtain new credit and do not control your spending, then you will likely be back in the same boat that you were in when you filed bankruptcy in the first place; only you will not have the option of filing again for 8 years. If you live in Massachusetts and you are considering bankruptcy, please feel free to contact us. Your consultation is free.
Posted in Credit Repair | 
Tags: Bankruptcy, credit, credit report, credit score, Massachusetts, rebuilding credit | 
3 Comments »
How Do I Save My House From Foreclosure?
Well, as most of you may know by now; Washington is too busy bailing out your mortgage companies to help homeowners. Therefore, I decided thought this would be a good time to reprint an article my partner Stefan Cencarik wrote a few months ago.
Many of our clients tell us that they are considering bankruptcy because they are having difficulty making their monthly mortgage payment. If you fall into this category, you are not alone. Whether or not you can keep you home depends on several factors. To determine if you can/or should keep you house, follow these steps:
Create a budget:
First, you should total all of your net monthly income (take home pay) for both you and your spouse; be sure to include any rental income you receive. Second, write down all of your household expenses, which include: your mortgage payment, utilities, car payments, food, health care (if not deducted from your paycheck), transportation, insurance, gasoline, child care, child support, and other necessities that you require to meet your basic needs. Do not include payments to unsecured creditors, such as credit cards, medical bills, and personal loans in your budget.
Next, subtract the total amount of your monthly expenses from your family’s net monthly income; you should have an approximate total of your monthly disposable income. If this number is negative (or in the “red”), then it is likely that you cannot afford your mortgage while meeting your basic needs. In other words, you are sacrificing some of your basic needs to pay the mortgage, or you are paying for your basic needs while not making your mortgage payments. If the number is positive, then you can’t make your mortgage payments because of your debt burden.
Ask your mortgage lender about loan modification
If you cannot afford your mortgage payments; then bankruptcy cannot help you save your home. However, many times mortgage lenders will provide their customers an opportunity to lower their monthly mortgage payments by “modifying,” or changing the terms of the loan. These changes typically lower your interest rate, provide graduated repayment options, or extend the term of your loan. At times, mortgage lenders will also allow you to payback all overdue mortgage payments as part of a balloon payment, or permit you to make additional payments to “catch up” on the mortgage. The loan modification requirements vary among lenders and you should contact the “loan modification,” “workout,” or “loss mitigation” department at your mortgage lender.
Consider Chapter 13 Bankruptcy:
If you have sufficient income to pay your mortgage, but you are behind on your mortgage payments then a Chapter 13 Bankruptcy will allow you to “catch up” on your past due mortgage payments over a period of 24 – 60 months. You will be required to pay your regular monthly mortgage payment AND make a monthly payment to the Chapter 13 Trustee. The bankruptcy will stop any foreclosure action and will allow you to live in your home.
The Chapter 7 Bankruptcy Alternative:
If you cannot afford your regular monthly mortgage payment, and you cannot workout an acceptable modification with your lender, a Chapter 7 Bankruptcy will permit you to leave the home while eliminating any financial liability on the mortgage loan. In other words, when the bank eventually forecloses the property you will not be responsible for paying back a deficiency assessment. This deficiency is assessed to you when the foreclosure auction sale price is not sufficient to payoff the mortgage loan in full. A Chapter 7 bankruptcy will permit you to leave the property without any financial liability and provide you with a fresh start.
Contact one of our Massachusetts Bankruptcy Attorneys:
The worst thing you can do is do nothing. While this article is designed to explain your options, it is not legal advice. Everyone’s situation is different, if you have any questions, you should consult with one of our Massachusetts bankruptcy attorneys toady; the consultation is free, so you have nothing to lose.
Personal Income Taxes in Bankruptcy
Income taxes present special problems and issues when it comes to bankruptcy. This article brief summary of this complicated rules that govern taxes for those who file bankruptcy.
The Bankruptcy Discharge
In bankruptcy, a “discharge” is the elimination of a debt. The goal of either a chapter 7 or a chapter 13 bankruptcy is obtaining a discharge of your unsecured debts. However, not all unsecured debts are dischargeable. Examples of non-dischargeable debts are student loans, child support and most taxes. However, while most taxes are not dischargeable, in some cases, income taxes are.
Bankruptcy Discharge of Income Taxes
In some instances Bankruptcy can be an effective way of dealing with past due federal and state income tax debt. Under the Bankruptcy Code, whether a tax obligation is dischargeable is determined by when the tax became due. If a bankruptcy debtor owes state or federal income taxes the taxes are dischargeable if the debtor filed their tax return and:
1. 3 Year Rule: The tax return was due more than 3 years prior to the bankruptcy filing. (If the debtor obtained an extension, the due date would be the extension deadline);
and
2. 2 Year Rule: The debtor’s income tax return was actually filed more than 2 years prior to the date the debtor files his bankruptcy;
and
3. 240 Day Rule: The income taxes were assessed by the IRS or Massachusetts DOR more than 240 days prior to the bankruptcy filing;
and
4. The debtor did not file a fraudulent return or willfully attempt to evade paying taxes.
If a Bankruptcy debtor meets all of the above criteria, then their income tax debt is dischargeable. However it is important to remember that these rules only apply to individual income taxes. Moreover, in a Chapter 7 Bankruptcy if the underlying tax obligation is dischargeable, the interest and penalties thereon are also dischargeable. However, if the underlying obligation is non-dischargeable, so are all related interest and penalties.
Tax Lien in a Chapter 7 Bankruptcy
If the IRS of Massachusetts DOR has already recorded a lien on your property, then their debt is secured, and in the case of a Chapter 7 bankruptcy, the tax cannot be discharged; even if a debtor meets all of the conditions listed above. However, that lien can only be assessed against the property that the lien is recorded. For example, if you owe the IRS $10,000.00 in taxes and you meet all of the qualification above, and the IRS records the lien against property that is only worth $5,000.00, after your bankruptcy, the IRS cannot record a lien against any other property that you own. Moreover, once the IRS sells the property that their lien is recorded against, the remaining balance that you owe is discharged.
Chapter 13 Bankruptcy
In a Chapter 13 bankruptcy, a bankruptcy debtor makes payments to a bankruptcy trustee for a period of 3 to 5 years. The trustee in turn pays the debtors creditors according to a repayment schedule, or “Chapter 13 Plan”. Certain debts are paid in full such as mortgage arrears and certain “priority debts” and general unsecured debts (such as credit cards, personal loans and medical bills) are paid with whatever is left over for a fraction of their value.
In a Chapter 13 Bankruptcy, income taxes are treated as priority debts; meaning that they must be paid before any other debts, and like all priority debts, they must be paid in full through the chapter 13 plan. However in order for an income tax to be considered priority the tax must meet only the 3 year rule and the 240 day rule. If the bankruptcy debtor has any tax debts that fall outside these two rules; that debt is considered a general unsecured debt and the tax debt will be treated the same as the debtor’s other unsecured debts during the repayment period. However, the tax debt will not be discharged. If the bankruptcy debtor does not satisfy these two rules, then the tax debt is considered a priority debt and it must be repaid in full through the Chapter 13 Plan. If the debtor cannot repay 100% of their priority debt through the Chapter 13 bankruptcy, they will have to convert their debt to a Chapter 7 bankruptcy.
Another important consideration for chapter 13 debtors is the accrual of penalties and interest. The filing of a chapter 13 bankruptcy stops the IRS and the Massachusetts DOR from assessing additional penalties and stops the accrual of interest.
Tax Lines in a Chapter 13 Bankruptcy
Another consideration in a chapter 13 is a tax lien. If the IRS of Massachusetts DOR has recorded a tax lien against a debtor’s property for unpaid income taxes, that debt becomes secured debt and cannot be discharged; even if the tax would have qualified for discharge under the 2 year and 240 day rules. However, if the amount of the lien exceeds the value of the property which the lien is attached, a debtor may seek relief from the Bankruptcy Judge and have the portion of the lien that exceeds the value of the property striped; something known as a “cram down”. The portion of the lien that is stripped then becomes unsecured.
Conclusion
The Bankruptcy rules are complex when it comes to dealing with income taxes and tax issues should not be handled by a pro-se bankruptcy filer or even an inexperienced bankruptcy attorney. If you have personal income tax issues you should consult with a Boston Bankruptcy Lawyer who is familiar with the bankruptcy rules regarding taxes and the many exceptions.
Posted in Taxes |
Tags: Bankruptcy, chapter 13, discharge, income taxes, irs, Massachusetts Bankruptcy lawyer |
1 Comment »
Why Won’t My Mortgage Company Modify My Home Mortgage?
If you have applied for a loan modification with your Mortgage Company or servicer, you are not alone. In fact, there are published reports of mortgage lenders and servicers receiving hundreds of thousands of requests for loan modification. However, there are few published success stories about homeowners who have actually been granted a loan modification. It is estimated that since early March, a mere 55,000 trial loan modifications have been granted by mortgage lenders following the launch of President Obama’s foreclosure prevention program. This success rate is low considering the number of homeowners who are currently facing default, foreclosure, or even eviction from their home. Due to the high volume of loan modification requests, loan servicers are currently overwhelmed by the influx of applications. President Obama’s administration launched a foreclosure prevention program and guidelines on March 4, 2009, however, it has taken mortgage companies and servicers months to overhaul their internal systems and train their staffs on processing applications. This period where lenders are ramping up for loan modifications has caused delays and frustration for many homeowners who are looking for a lifeline from their mortgage company.
The “Investors First/Customers Last” Approach
Another barrier to loan modification is the pressure placed on mortgage servicers by their investors. In many instances, hundreds of mortgages are “pooled” or packaged together as a securities and sold to a group on investors. Sometimes there are hundreds of investors in these “pooled” securities. Not only is it difficult to get all the investor’s consent for a loan modification; but, there is no incentive for these investors to grant consent to modify any mortgages that are part of their pool. These investors are not required to, and there is nothing to compel them to consent to any loan modification. Many servicing agreements between investors and mortgage servicers restrict and prohibit the mortgage loan servicers from modifying the material parts of any loan, such as the interest rate, repayment terms, or monthly payments. This results in you, the homeowner, waiting months and months for approval your loan modification that is probably never going to come.
Bankruptcy Court Intervention: A Guaranteed Solution
So, what is a homeowner to do? A Chapter 13 Bankruptcy can help homeowners prevent the foreclosure of their home, and provide a plan for the repayment of all past due mortgage and escrow payments. A Chapter 13 Bankruptcy cannot modify the terms of your first mortgage, and, in many instances, the success of a Chapter 13 case depends on the willingness of the mortgage lender to modify a mortgage and reduce monthly payments. In limited cases, a Chapter 13 bankruptcy can avoid and eventually discharge a second mortgage. This action can be taken immediately in a Chapter 13 case, which can reduce your total monthly mortgage payment by the amount of your second mortgage. This relief applies in limited circumstances and it is important that you consult with an experienced Massachusetts bankruptcy attorney at Grantham Cencarik, P.C. to determine whether you qualify.
The First Step: Call Us – (617)497-7140
In the mean time; if you receive a letter from your lender concerning foreclosure; call us immediately; because the longer you wait, the more likely you are to lose your home. Also avoid talking to anyone who claims that they can save your home without filing bankruptcy, chances are, it is one of the many predators out there who try to steal the equity in your home, or who take money from you. If you are approached by one of these people, tell them you want to have your lawyer review their offer first, then call us for a free consultation.