If you have filed for bankruptcy, your case filing will appear on your credit report. However, you will be grouped on a Score Card with other individuals who have filed for bankruptcy.  As such, your credit history will be compared with others in your Score Card, and could be viewed favorably by lenders.  However, if and when you are placed into a different Score Card with individuals who have not filed bankruptcy, and who have strong credit histories, your credit rating could be viewed unfavorably by lenders.  In other words, your credit score will be lower, and your credit score can drop when you “jump” from one Score Card to the next.

The best way to avoid a significant drop off in a credit score and recover your credit rating when switching score cards is to repay all debts on-time; pay down all outstanding debts; refrain from opening new credit accounts; and keeping low balances when you do incur debt.  Adhering to this formula will invariably raise your credit score, which will allow you to borrow money to purchase a car or a home at a more favorable interest rate.  Rebuilding your credit score after filing for Chapter 7 or Chapter 13 bankruptcy is possible, however, it takes discipline and time to achieve a higher credit score rating.

A “charge off” means that your delinquent debt was sold and/or transferred for collection purposes to a third party.   In all likelihood, after your debts are charged off, you will remain legally responsible for repaying the debt.  In other words, your debt is a contract to repay money, and those rights may be sold, assigned, and transferred to a third party. Some of the large credit card companies use collection agencies to collect their debts.  Here, credit issuers prefer to outsource their collections to aggressive third party agencies who take the risk and rewards in collecting delinquent debts.  In the alternative, many companies and debt collectors are active in the delinquent consumer debt market, and purchase delinquent debt from credit card companies. In these cases, your debt is sold to these companies for a fraction of its full value.

In either instance you have a right to request that the original creditor or new account owner provide documentation that verifies the debt.  You have a right to request a record of assignment and transfer if your debt was sold to a third party.  You also have the right to request an account statement that provides a breakdown of the principal and interest owed, as well as a statement of all credits made to your account. For more information, see the Fair Debt Collection Practices Act, 15 USC s. 1692(g) for the Federal statutes concerning the validation of debts.

If you are considering paying debts that are now owned by a third party, keep in mind that paying off those debts may not improve your FICO credit score. The most important factor that weighs upon your credit score is what the original creditor reports to the consumer reporting agency. This report is weighed upon much more heavily than what is reported by a debt collector or third party assignee of a debt.  In other words, paying off collections accounts does not improve your FICO credit score.

What can you do to stop calls from creditors and collectors?

If you have already filed bankruptcy, the automatic stay, 11 U.S.C. s. 362, prohibits all of creditors and collectors from contacting you for the purposes of collecting a debt. Once you bankruptcy petitions has been filed, your creditors and the collectors will be notified of the case filing, and the calls will gradually terminate. If one of your creditors contacts you after your petition has been filed, provide them with your case number and that you have filed for bankruptcy in the District of Massachusetts. This should put an immediate end to collection calls.

If you have not yet filed for bankruptcy, are in the middle of the bankruptcy process, or still deciding whether to file for bankruptcy, there are actions that you can take to eliminate off collection telephone calls. Pursuant to the Fair Debt Collection Practices Act, your creditors must cease and desist debt collection communications if you notify them in writing that you do not wish to be contacted. The next time you receive a call you should answer it. Then, ask the caller which account they are calling in reference to; as well as the name, address and fax number of the caller (collection agent). Make sure to include all this information on your letter that instructs the collector not to contact you. If you are receiving calls at work, make sure to inform them not to call you at work or that your employer does not permit such calls to be made to your place of employment. Make sure to fax and mail this letter to the collector.

Keep in mind though, that just because your creditors are no longer calling you; they have not stopped collection of your account. Usually, your creditor’s next step will be to sue you for the money you owe them. Once they get a judgment against you, then your creditor has new powers to make you pay, such as seizing a vehicle, garnishing your wages, or forcing you to come to court on a monthly basis. The only way to stop your creditors is to either pay them, or to file bankruptcy. For more information, contact us by calling 1-888-5-BOSTON, or 617-497-7141.

Last year, Congress passed new legislation designed to help the average borrower. This legislation that was signed by President Obama last May, prevents card companies from raising rates on existing balances unless the borrower is at least 60 days late and would requires the original rate to be restored if payments are received on time for six months. The law also requires banks to get customers’ permission before allowing them to go over their limits, for which they would have to pay a fee. This law went into effect in February of this year.

So how did the credit card companies respond to this law? Simple….they all raised their rates just before February regardless of the borrower’s payment history or credit score. So effectively, the credit card companies gave them selves a quick raise before they were no longer allowed to. (I guess the bailout wasn’t enough.)

So for most of you who were probably just making ends meet up until February, you are now finding that it is harder and harder to keep up with your payments, even falling behind on your bills or losing money to bank overdraft fees that seem to creep up on you when you least expect it.

Well, guess what? You are not alone. We have had several recent clients who saw their credit card payments increase over $500 a month. Prior to this, they had perfect credit and had never missed a payment. After their payments increased they fell further and further behind until finally they ran out of options.

The point is, there are options available. For a few with relatively small balances, credit counseling may be an option. However, if your balance is over $20,000, you may find this option unacceptable. This leaves Bankruptcy. Bankruptcy provides people like you with an an opportunity to take control of your finances. In most cases, through bankruptcy, you are able to discharge all of your unsecured credit card debt. This leaves you debt free and gives you an opportunity to start over with your credit score.

Keep in mind that bankruptcy is not for everyone; but for most, it is a very powerful tool that will allow you take control of your finances. Our firm provides a free consultation for anyone who is having problems paying their credit cards. There are no obligations, so contact us today.

1. Under the new Bankruptcy Laws Everyone has to repay their creditors. False: In 2005, the bankruptcy laws were changed to provide a test to see who can qualify for a Chapter 7 Bankruptcy. Essentially, if someone has sufficient income, and the ability to repay a portion of their debt, then they will have to file a chapter 13 which will require them to enter into a court supervised repayment plan with their creditors. The new law does not prevent people from filing and in most situations people are still able to get the same relief now as before the law changed.

2. Once I file Bankruptcy my credit is ruined for life. Not Quite…while bankruptcy is a blow to your credit rating; it is not permanent. Because most people have numerous charge offs and sometimes even a collections lawsuit on their credit report before they decide to file, most people will actually seen an increase in their credit score within 1-2 years. Moreover, most of our clients report that they are able purchase cars and homes within 2 – 3 years.

3. Only deadbeats and losers file for bankruptcy. False…Most people file for bankruptcy after a life-changing experience, such as a divorce, unemployment or a serious illness. They’ve struggled to pay their bills for months and just keep falling further behind.
Moreover, some famous people who have filed bankruptcy who were (or are) successful include: Walt Disney, three US Presidents, Larry King, Donald Trump, and Henry Ford.

4. All debts can be discharged in a bankruptcy filing. False…certain debts cannot be discharged through bankruptcy. For example, child support, student loans and most taxes, and debts incurred by fraud (to name a few) cannot not discharged. This list has exceptions and is not exhaustive. If you have questions, contact a bankruptcy lawyer.

5. You can’t get rid of back taxes through bankruptcy. Generally speaking, this is true. However, under some circumstances income taxes are dischargeable. The rules concerning discharging taxes are complicated; so if you owe income taxes, an experienced bankruptcy lawyer can tell you if you can discharge the taxes.

6. Filing bankruptcy could cost you your job. No. The current bankruptcy code prohibits discrimination against an individual who is in bankruptcy or who has bankruptcy in the past.

7. You will never be able to own property again. Not True. Once you receive your bankruptcy discharge, you bankruptcy if finished. You can continue to live your life and can purchase and sell property like everyone else. Creditors will eventually lend to you again to help you with large purchases and you are able to purchase whatever you can afford.

8. Everyone will know I filed for bankruptcy. False. Bankruptcies, like all court records are public; however, in order to see the records, one has to actually go to the court and look for them. Bankruptcy is not published generally the only people who are going to know are those who you tell. Some people think that newspapers carry bankruptcy filing information, this is simply not true.

9. I will lose everything I own. Again this is false. Once you file bankruptcy, you will be able to keep certain property up to a certain value; this property is known as exempt. Most bankruptcies are known as “no asset” bankruptcies, meaning that you get to keep all of your property and all of your unsecured debts are discharged. Exemptions vary from state to state, so it is important to speak with an experienced bankruptcy attorney in your area.

10. Creditors can still harass me if I file for bankruptcy. Not Legally. When the bankruptcy is filed, automatic protection is put onto you and all of your property instantly. Creditors are not allowed to contact you for any reason, which includes calling or even billing you. If they persist in harassing you, you do have remedies available through the Federal Bankruptcy laws.

11. I can be turned down for filing bankruptcy. Mostly False. So long as you are honest on your petition, don’t try to conceal assets and don’t lie about your income an experienced bankruptcy will be able to file you in the proper chapter bankruptcy and your debts will be discharged. The bankruptcy statute is designed to help ALL honest debtors who need help. If you lie on your petition, or try to conceal assets, then the justice department will seize your assets to repay your creditors and you will not have your debts discharged. Moreover, you could end up in jail.

12. Bankruptcy is easy; I don’t need an attorney. False. The bankruptcy code is extremely complex; so complex that a lot of attorneys choose not to practice in the field. If you fail to take all the proper steps leading up to filing bankruptcy, then you risk losing your home, and/or all of your assets. We have represented several clients who wanted to save money and who filed bankruptcy without an attorney and messed up on their petition and/or filed under the wrong chapter. They ended up paying us three or four times more in legal fees to fix the mess that they made than they would have paid us to file their bankruptcy in the first place.

By no means is this an exhaustive list and there are many more misconceptions out there. If you have any questions, then you should contact us and schedule a free appointment. You have nothing to lose and we can provide you with the facts you need to make an informed decision.

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.

1. 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.
2. Use your credit card only for emergencies or large necessities and don’t use it again until the balance is paid.
3. Never carry a balance on your card more than two months of disposable income.
4. 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.
5. 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!
6. 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!
7. 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.