Banks and credit card companies have told us how important it is to maintain our credit, honor our obligations, pay on time, but what if we suddenly can’t pay on time, then what? What if I lose my job, and can’t pay anyone right now, where does that put me? The answers may surprise you:
Q: My wife recently lost her job. My income goes to food and rent. We haven’t paid our credit cards for several months, and one account is with a collection agency. What can we do?
A: That depends on how long you think it will take for your wife to find a job, how much you owe, and whether your creditors will actually sue, and garnish your wages. Generally speaking, if payments to your credit card debts are more than 30% of your take home pay, you’re in trouble. There are several things you can do. (1) Do nothing – thats easy, but in the long run, does little to solve the issue that just gets bigger, in the sense that your credit report and fico score continues to escalate downwards. (2) Call creditors, tell them your wife has lost her job, try to get them to forgive part of the debt. (3) Since your wife is unemployed, you could also consider filing bankruptcy. With only one wage coming in, you undoubtedly qualify, and the threat of a possible bankruptcy gives you and your attorney a lot of leaverage in negotiating with creditors.
Also bear in mind, that when your wife finds a job, and contributes to household income, you become more vunerable to judgement lawsuits.
Q: Will filing for bankruptcy ruin my credit forever?
A: No, in fact it will actually start to improve it. If you cannot make ends meet, your debt to income ratio is too high. At that point your prospects of getting more credit is zero. A bankruptcy cures the debt to income problem, discharging debt and leaving income. This gives you access to a number of credit card providers and other lenders who literally target people with bankruptcy discharges. See next question!
Q: Will anyone issue me with a credit card, when I have a bankruptcy on my report?
A: Yes, there are many banks and other lenders who specialize in doing business with bankruptcy debtors. You can qualify for loans secured by collateral, such as auto loans, home loans, even credit cards, secured by a savings account. Their main motivation is targetting a niche martket for higher interest rates. They want to charge you a little extra, and there is no real risk involved. After bankruptcy, you cannot file again for eight years. You have no other debts, which gives an excellent debt to income ratio. Bottom line – you can afford to service a new loan.
Q: How long does it take to get unsecured credit at the same cost as before my bankruptcy?
A: Anywhere between 60 days and two years, depending on what you are looking for.
Several department stores will give you a store account, if you have a major credit card. You can easily start out with a secured visa card, then open a store account. Within a short period of time, your fico score starts to climb. Mortgage companys are looking for two years of some credit history from the date of a bankruptcy discharge.
Q: How long does it take to get a bankruptcy off my credit report?
A: The law permits credit reporting agencies to report your bankruptcy for up to 10 years. This does not mean that is has to stay on for ten years though. By using special credit repair strategies, you is sometimes possible to get the credit reporting agencies to delete all reference to your prior bankruptcy, before the 10 years are up!
Q: We were just sued by our neighbors who are claiming $60,000 in compensatory damages. We just want to move away. Our house is up for sale, but I was wondering, if we don’t sell it on time, before the judgment, can I quitclaim the house to my mother. Will this protect our equity? (about $50,000.00).
A: No. You cannot give away your assets as a way of protecting them from a lawsuit. The court will rescind any such transfer, and you may end up in far worse trouble – accused of a fraudulent conveyance. Your best course of action is not to sell the house at all, at least not yet. The house is the best “bank” you have, because you can protect your equity as a homestead exemption. If you sell the house and get the money, it may be seized or attached by the plaintiffs. By keeping the house, you could file a bankruptcy on the judgment, and then sell the house. House sale proceeds that come in after the bankruptcy are all yours.
Admittedly, most people filing bankruptcy, file under Chapter 7, (The real bankruptcy) that discharges all unsecured debt. However, there are people with problems that are best resolved through Chapter 13. This chapter is used primarily by those who either have problems making payments on secured debt, and want to keep the collateral (House, Auto, other) , or perhaps, have plenty of assets that are very difficult to liquidate. Chapter 13 is also used by individuals who simply earn too much money to qualify for a chapter 7, (based on the cost of living index and other criteria, but not enough money to service their bill).
This type of bankruptcy can provide creditors with a partial payment plan over 60 months. Depending on the debtors disposable income after approved living expenses, the plan could provide a 5% or more, for the duration of the plan. The balance of the debt is then discharged, just like in a regular bankruptcy.
Most of the chapter 13’s filed in my office, are clients who are late on their mortgage, and want to avoid losing their home through foreclosure. Since the mortgage is a secured debt, they only two choices, pay the debt or give up the house, but there is help. Chapter 13, enables you to amortize the mortgage arrearages in a 60 month plan, and in most cases, discharge unsecured debt at the same time. By discharging unsecured debt, your ability to service the mortgage is improved, and hopefully, you can stay in your home.
Q: Can I make lower house payments if I file a Chapter 13 repayment plan?
A: If you have a second mortgage, we might be able to strip that off the property, which would lower your monthly payments. As far as the first mortgage is concerned, you may also be eligible for one of several loan modification plans that we work with. If you are not eligible for a loan modification, you must make the regular scheduled payments.
However, as mentioned above, the delinquent portion can be spread out over the chapter 13 plan that gives you 60 months at a nominal interest rate.
Q: What does Chapter 13 do to my credit card debts?
A: That depends on your income level. For most people, their unsecured debt, like credit card debt is wiped out. This in turn helps to pay the mortgage arrears.
Q: Can a Chapter 13 stop lenders repossessing my automobile?
A: Yes, it will stop the repossession, and your monthly payments can be lowered, based on the depreciated value of the automobile.
Q: Can a Chapter 13 help me with debts to the IRS or student loans?
A: A Chapter 13 can be very helpful with debts that are not dischargeable in a regular Chapter 7. These types of debts can only be discharged if they are past their respective statute of limitations. A chapter 13 will allow you to pay these debts over a period of time, and limit future interest accruing on the debt.
Q: What’s the main difference between Chapter 13 and Chapter 7?
A: Chapter 7 will discharge all unsecured debts, but does not resolve problems associated with arrears on secured debts. (Such as late payments on the mortgage or car).
Q: I filed Chapter 7 last year, can I file Chapter 13 now?
A: Yes. Although Chapter 7 bars you from re-filing again for eight years, a Chapter 13 can be filed every three years.
Q: I own a house together with my brother. We want to file a Chapter 13 to stop a foreclosure, do we both have to file?
A: No, only one of you need file, preferable the party that owes the most in unsecured debt, and thereby has the most to gain.
Q: I have no equity in my home. I just want to stay here as long as possible. What can be done to stop a trust deed sale and prolong my occupancy?
FREE CONSULTATION – BUT ACT NOW!
Need advice on a financial problem? Don’t let creditors intimidate you. For immediate help, call my office and schedule an appointment. Two offices to serve you. Glendale 818-334-5445, or Cerritos 562-356-9931. Consultations are free, but by appointment only.
Law Offices of Paul M. Allen
(This article is for information purposes only, and does not necessary reflect the company’s opinions and views on general issues. We make no warranty, prediction nor representation, nor do we assume any legal liability for the completeness of any information and its effect on any case. Each case is different and results depend on the facts of each case. Consult with and retain counsel of your own choice if you need legal advice.)