- 1 Credit Availability and Credit Scores After Bankruptcy
- 2 Why Banks Want to Give You Credit Cards after Bankruptcy
- 3 What property can I keep after a chapter 7 bankruptcy?
- 4 Chapter 7 Bankruptcy – ZERO DOWN
- 4.1 Wipe out credit card debt through Chapter 7 bankruptcy
- 4.2 What property is exempt from sale under Chapter 7 relief?
- 5 Chapter 7 Bankruptcy Provides You With A Fresh Start
Credit Availability and Credit Scores After Bankruptcy
Many people who file for bankruptcy, or contemplate it, often wonder how much their credit score will decline because of the bankruptcy, and how soon they will be able to obtain new credit. The answer will largely depend on what chapter of bankruptcy you file under. For most people, it's either Chapter 7 or Chapter 13. However, let's first examine the effect of bankruptcy itself on credit scores and credit availability.
According to this article, Credit Missteps, at myFICO.com, which is maintained by Fair Isaacs Corporation, the company that developed the credit score algorithm used by most lenders, bankruptcy lowers credit scores to the 500 range. It demonstrates how much bankruptcy lowers credit scores by using 2 hypothetical consumers, one with a credit score of 780 and the other with a credit score of 680 before filing for bankruptcy. The 780 score is reduced to 540-560 by the bankruptcy and the 680 score is reduced to 530-550. This also illustrates the fact that the higher the initial credit score, the more it is reduced by negative credit events.
However, even though bankruptcy lowers credit scores, it probably won't lower your score much more than it already is if you are in the dire financial straits where bankruptcy is your best alternative. Even if you were not yet late in any payments, if you cannot continue making payments then your credit score will suffer anyway. Hence, the effect of bankruptcy on credit scores is really irrelevant. What is relevant is that bankruptcy will help considerably in bettering your financial position by lowering or eliminating your debts, which, in turn, will better your credit score over time.
Credit scores are based on your financial history in the last 2 years, with more recent data having more weight in computing the score. Hence, by using credit wisely after bankruptcy, you can quickly raise your score significantly in as little as 1 year after bankruptcy.
However, to raise your credit score, you need new credit and that you will not get while you are in bankruptcy, and here is where the different chapters of bankruptcy differ significantly.
Chapter 7 and the Rehabilitative Bankruptcies
It has often been published and what many people think, especially those in Congress, is that filing under Chapter 13 or one of the other rehabilitative chapters of bankruptcy—Chapter 11 and 12—is better for your credit and therefore your credit score. However, this doesn't reflect how the credit scoring system works.
First, you will not get new credit until you receive a discharge of your prior debts—without that discharge, you would be a significant risk to any new lenders since they will not know your debt load until you have actually received a discharge of your debts. However, the rehabilitative bankruptcies require that you pay your past creditors with future income. Under Chapter 13, which is the most common rehabilitative chapter, you must pay your creditors for 3 years if your income is below the state median or for 5 years if it is above. You will not receive a discharge until your payment plan is completed and it must last for the specified time. You can receive a discharge sooner by either paying your creditors 100% of their debt or by obtaining a hardship discharge, which will only be granted under special circumstances. For instance, you have been disabled and it is not likely that you will get better during the pendency of your bankruptcy.
Under Chapter 7, your nonexempt, valuable assets are sold to pay creditors. All income earned after your bankruptcy filing date is yours to keep. The process of Chapter 7 takes 4 to 6 months, after which you receive a discharge, provided that your case is not dismissed before the discharge, as can happen if you were dishonest in your bankruptcy petition, for instance, or if you fail the means test, in which case, you will have to file under Chapter 13 or risk having your case dismissed under the presumption of abuse. This is why most people with no significant assets choose Chapter 7 over Chapter 13. Since you receive a discharge much sooner, you can re-establish credit sooner, and if you get new credit and pay your bills on time, your credit score will increase, especially if you do not incur debts that are a significant portion of your credit line—in other words, you keep your credit utilization low.
Getting New Credit After Bankruptcy
A bankruptcy discharge makes you a better credit risk because your prior nonpriority debts are discharged and because you are restricted from filing for bankruptcy again. Henceforth, your risk will be determined by your income and by the amount of priority debts you have that are not dischargeable. If you have a good amount of income over your expenses, then you should easily be able to re-establish credit. You also need a checking account and it would also help to have a savings account. A savings account doesn't affect your credit score, but lenders look at other things that will lower the risk of default and a savings account is one such thing, since it provides a cushion for emergencies. Another thing that may help is to agree to online statements, since this lowers the lender's cost of doing business with you, and online bill pay can help ensure that you make timely payments.
Don't try to establish new credit by applying for credit, since this lowers your credit score—the more you apply for credit, the lower your credit score, and the less likely that you will get credit. What to do in the meantime? Pay cash or use a debit card.
You can also apply for secured credit cards, where you have to deposit a minimum amount in a savings account. But because there are companies that are willing to extend credit to those with lower credit scores, simply wait until you get credit offers. There are banks that offer credit to recent bankrupts that don't even require a security deposit. Some will try to charge you onerous fees, where the fees will consume more than half of the credit that they offer.
Part of being a smart consumer is to know when you are being ripped off! Others will offer you limited credit for a reasonable annual fee—this is usually a good offer. You can't expect to get a 1 st credit card with no fees, so a low annual fee is good. Besides, in the current credit environment, it will be harder for many people to get credit cards without an annual fee. The Credit Card Act of 2009 has greatly restricted lender's ability to rip off consumers, but you still must be vigilant.
If you do want to apply for credit, then choose a credit provider that is willing to lend to people with lower credit scores. Capital One, for instance, is a major lender to people with lower credit scores. Some lenders, like American Express, won't lend to you as long as you have a bankruptcy in your credit record, so don't waste your time or lower your credit score by applying for an American Express card. One of the best ways to find out about your best possibilities is to go to online forums that cover consumer credit. This way you can find out about different lenders without applying for credit and risk being rejected, where each rejection will lower your credit score for 1 year after your application was rejected.
You can find many forums by searching for "forums credit cards". Many of the listings are dated, so be sure that you are reading current posts.
So how long does bankruptcy stay on your credit report?
Bankruptcy Listings in Credit Reports
A Chapter 7 bankruptcy can be listed in credit reports for up to 10 years from the bankruptcy filing date, and a Chapter 13 bankruptcy can be listed for up to 7 years after filing. Note that because a Chapter 13 case usually takes about 3 to 5 years from filing to discharge, a Chapter 13 bankruptcy can only be listed in credit reports for about 2 to 4 more years after the final discharge.
Another advantage of bankruptcy is that it places a definite time limit on defaulted accounts. In other words, a delinquent credit card account will be listed in credit reports for up to 7 years after the account is closed! If the account is never closed, then it can remain on the credit report indefinitely. Bankruptcy puts a definite limit on how long discharged accounts can remain in the file.
Some people seek to dismiss their bankruptcy case under the mistaken belief that it will improve their credit history. It won't! The bankruptcy filing goes on your credit report, not the discharge. In fact, your credit history will be better if you get a discharge, because your discharged debts listed on your credit report must be listed as discharged—this lowers, or eliminates, your overall debt, which will lower your credit risk.
Since credit scores are calculated based on information in your credit reports, it is important that you ensure that your reports have accurate information. After receiving a discharge of your debts, you should check all 3 credit reports to make sure that your discharged debts are listed as such in your credit report.
Why Banks Want to Give You Credit Cards after Bankruptcy
CardRatings.com’s Curtis Arnold has compiled a list of what he believes are the best credit cards Americans can have after a bankruptcy. While I’m not really all that interested in how all these cards compare to one another, I’d like to say a few words about the concept of extending credit to a person whose bankruptcy has been recently discharged.
At first glance, giving a credit card to someone who’s just been released from the obligation to repay his previous debts sounds like an extremely risky proposition, doesn’t it? So why would any lender do it? Arnold’s explanation is that “[l]enders understand that a bankruptcy rarely reflects your true relationship with money” and he cites a survey, which has found that about 80 percent of all bankruptcies are the result of events over which the debtors have no control. Well, that may all be true, but there is a much more compelling reason for the issuers’ willingness to lend to people with recent bankruptcies on file. It is that you cannot file for another bankruptcy, and so default on your new credit lines, for several years after your latest discharge. Let’s go over the details.
There are no limits on how many times you can file for bankruptcy in the U.S., but there are rules on how often you can do it. These are federal rules, so they apply to all states, and the law differentiates between bankruptcies discharged under Chapter 7 (liquidation) and Chapter 13 (reorganization) of the bankruptcy code.
If you have had your debts discharged under Chapter 7, you must wait for eight years before you can file another bankruptcy Chapter 7 petition or four years if you are filing for Chapter 13 protection. If, on the other hand, your debts have been discharged under Chapter 13, you must wait for six years before you can file for Chapter 7 and only two years for another Chapter 13. The time limit does not apply if you are filing for bankruptcy under Chapter 7, having repaid 70 percent or more of your unsecured debt (which includes credit cards) during your previous Chapter 13 reorganization procedure.
The reason the law is more lenient toward Chapter 13 filers is that they commit to making an effort to pay back at least some of their unsecured debt, under a court-approved plan, which is not the case in Chapter 7.
Now you can understand why creditors are willing to lend to the recently bankrupt. Of course, these are still considered very risky loans, which is why they are extended on rather unattractive terms. After all, the debtor may not be able to file for bankruptcy anytime soon, but he is still statistically more likely than the average one to not pay it back. And if that is the case, there is not much the lender can do. Yes, in theory, the debtor could be sued, but in practice the lender would be unlikely to do it, simply because the potential return, if any, would be outweighed by the cost of the legal proceedings.
The types of credit cards that are available to the recently bankrupt typically feature a low credit limit, charge an annual fee and a high interest rate and require a security deposit. It is not the type of card that someone with an average credit score would ever consider.
And yet, unappealing as these cards may be, they still represent the best card option that is available to the recently bankrupt, easily beating out debit and prepaid cards. The reason is that only credit card use affects your credit score and improving it should be your top priority. Over time, if you consistently make your payments on time, you will start receiving offers for more typical credit cards and you should accept one of them. Until then, however, you shouldn’t be actively applying for one of these “normal” credit cards, because you will be rejected every time and each one of these applications will be listed on your credit file, which counts against you.
Arnold’s counsel is that “[g]etting back into debt shouldn’t be your goal when applying for credit cards after bankruptcy.” I find that advice slightly disturbing. Should getting into credit card debt ever be anyone’s goal? Does anyone really need to be told that this is a bad idea and it should be avoided? Fortunately, recent data indicate that a vast majority of American credit card users are answering these two questions in the negative. Both credit card charge-off and late payment rates are at historic lows, and early-stage delinquencies are at 0.75 percent. So I’m hopeful!
What property can I keep after a chapter 7 bankruptcy?
Deciding to file for bankruptcy is a difficult decision that most people try and avoid if at all possible, especially since filing stays on one’s credit report for 10 years. But for many circumstances force their hands and bankruptcy becomes inevitible. Under Chapter 13 Bankruptcy, debtors pay back debts over an extended period of time, but when that isn’t possible some will file for Chapter 7 Bankruptcy which will cancel many of their debts.
However, just because someone has filed a Chapter 7 Bankruptcy doesn’t mean they can live in luxury. Filing a Chapter 7 Bankruptcy is a humbling experience, one that requires many to scale back to the necessities, take inventory of their possesions and prioritize their lives. Excessive posessions will be liquidated in order to pay creditors at least a portion of what is owed.
But of course, no one expects people to live with absolutely nothing. For this reason there are limits on what property one is allowed to keep. Many people find these limits quite reasonable, and well worth the peace of mind that comes from no more collection calls.
Exact values of what is allowed can vary somewhat depending on what state a Chapter 7 Bankruptcy is filed in.
- The first thing you get to keep is $20,200 of value in your residence. This means those with a large amount of equity in a home, may need to refinance to pay off some bills before being condisered. However, for those who rent, this should not be a factor.
- You are also allowed to keep your vehicle valued up to $3225. This is the Market Value, minus any loans against it. Household items values at up to $10,775 are also considered exempt, except no individual item can be valued at more than $525. Jewlery and heirlooms up to $1225 may be kept. Tools of the trade, valued to $1850 may be kept, this includes anything which is deemed necessary to earn one’s livelihood.
- You may also continue to receive a reasonable amount of alimony or child support, and public benefits, such as unemployment, worker’s compensation, Veteran’s benefits or social security are also safe. Retirement accounts, such as 401Ks, should also be left in tact.
- In addition to liquidating assets down to these levels, filers of Chapter 7 backruptcy must also meet median income guidelines, and complete credit counseling before filing.
Chapter 7 Bankruptcy – ZERO DOWN
Chapter 7 Bankruptcy is often called the “fresh start” provision of the bankruptcy code because it allows you to wipe out all of your debt. In a Chapter 7, we show the Court that you are unable, based upon your budget, to pay the debt that currently hangs over you.
Our ZERO down to file Chapter 7 Policy
We are by far the largest filer of bankruptcies in Georgia. This is how we offer to advance our clients the filing fee of $335.00, the mandatory credit counseling fees, your credit report from all 3 bureaus and obtain your tax returns. These fees will be blended into a payment program with your attorney fees.
What’s the catch? ( How can I qualify for this $O down option)
There are only 3 simple qualifications,
1- You must have the desire to become debt free
2- You must have an established bank account. This is our method of receiving installment payments via auto debit.
3- The ability to re-pay. You must have income sufficient to make the monthly payments we both agree on.
What if for some reason I can’t qualify for the $O down option?
Do not worry, we have additional options to help get you the debt relief you deserve. We will figure out a plan that works for you.
Keep in mind we never allow our fees to get in the way of providing you the debt relief you need. We will always work something out.
Clark & Washington charges a base fee of $1,400.00 for attorneys fees in a routine Chapter 7 case. However this fee is just a base. Our fees will be adjusted by your attorney to meet your needs. And remember you pay no upfront money, Nada, Zip to file Chapter 7 bankruptcy.
Consideration of the fee is based on a number of factors such as:
- the total amount of debt
- the type of debt (secured debt, judgments, credit cards, taxes, student loans etc.)
- the amount and type of assets
- whether you owe either priority or stale taxes
- the number of pieces of real estate owned
Call us at 770-488-9302 or Schedule Online for your free initial consultation.
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Wipe out credit card debt through Chapter 7 bankruptcy
At Clark & Washington, we understand how easy it is to fall behind on credit card payments, and we know how much relief our clients feel when their credit card problems are resolved through bankruptcy.
When credit cards have high interest rates, even reasonable spending can quickly lead to large balances. It’s not unusual for people who are struggling with other bills, such as a mortgage and car loans, to devote their paychecks to those bills and then rely on credit cards to buy food, clothes and other necessities — and then find themselves overburdened by credit card debt on top of their other obligations. Chapter 7 bankruptcy can provide instant relief from credit card debts, giving you a fresh start after your case is completed.
What property is exempt from sale under Chapter 7 relief?
Under Georgia law, some property and income is exempt from being sold off in Chapter 7 bankruptcy proceedings. Those exceptions include:
- The homestead, up to $21,500 in value
- Income from child support or alimony
- Workers compensation
- Veterans benefits
- IRAs and ERISA-qualified benefits
- Insurance proceeds
- Motor vehicles, up to $3,500 in value
- Unemployment compensation, Social Security benefits or public assistance
- Aid to disabled persons
- Tools necessary for a particular trade
- Up to $600 of property chosen by the individual
The homestead exception can be critical to someone facing the prospect of foreclosure and eviction. There are also other exemptions under Chapter 7, but you should know that filing for bankruptcy has a long-term effect on your credit rating, for up to ten years. If you’d like more information on whether filing for bankruptcy is right for you, speak with one of our knowledgeable Atlanta, Georgia bankruptcy lawyers today.
Contact our office for a free initial consultation about Chapter 7 bankruptcy
Anyone who tries to file for Chapter 7 alone risks omitting critical property exemptions or having their petition rejected altogether. You can avoid this by having an experienced bankruptcy lawyer guide you through the process. Clark & Washington, Attorneys at Law offers 12 metro Atlanta locations. Call us at 770-488-9302 or Schedule Online for your free initial consultation.
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Chapter 7 Bankruptcy Provides You With A Fresh Start
Filing for bankruptcy gives a fresh start to financially strapped individuals. In a Chapter 7 personal bankruptcy, all credit card debts and “unsecured” debts are eliminated and it gives you a chance at a new life.
After bankruptcy, you can recover good credit in about two years. Filing for bankruptcy does not mean 7 to 10 years of bad credit – that is a myth. Credit card companies usually offer you new credit cards right after the bankruptcy is over. Qualifying for a mortgage will take about three years after bankruptcy.
The most often asked question is how does one qualify for Chapter 7 bankruptcy? Essentially, you need to have three things: (1) moderate to low income, (2) significant amount of debt and (3) no substantial property.
One: Moderate to Low Income
In order to qualify for Chapter 7 personal bankruptcy, you must have moderate to low income. Your income level is determined by your household’s circumstances. This includes factors such as your cost of living, where you live and what deductions are taken out of your paychecks.
Every case has its specific circumstances. Here are a few examples where Chapter 7 bankruptcy laws can help:
• A single parent with one child and no child support, living in the Bronx can be earning $58,000 a year and qualify for Chapter 7 bankruptcy.
• A married couple living in New Jersey with two small children where one spouse earns $60,000 a year and the other spouse earns $45,000 a year could potentially qualify for Chapter 7 bankruptcy with a total household income of $105,000.
• A single individual living in Brooklyn with no dependents can earn $45,000 a year and qualify for Chapter 7 bankruptcy.
Income levels that qualify for Chapter 7 bankruptcy filing are based on median income figures provided by the Census Bureau. However, these figures are not strict guidelines so you may be able to qualify for Chapter 7 bankruptcy even if you are making more income than the median income depending on the details of your situation. If your income is too high to qualify for Chapter 7 bankruptcy, you may qualify for Chapter 13 bankruptcy.
Individuals can file Chapter 7 bankruptcy to eliminate debt as low as $4000 and as high as $100,000 or more. In an average Chapter 7 case, debt totals typically range between $20,000 and $60,000. The total amount of debt that is considered substantial can vary greatly from one individual to another. For example, a $4,000 credit card debt to a single parent with two children, earning $28,000 a year with no child support can be just as overwhelming as a $20,000 credit card debt for an individual with higher income.
Three: No Substantial Property
Filing Chapter 7 bankruptcy does not mean you lose all of your property or possessions. The bankruptcy law is designed to protect individuals’ cars, homes, bank accounts and other assets up to certain values. In the great majority of bankruptcy cases, consumers are allowed to keep their cars, homes, bank accounts and other household items. The amount of protection is different for each state. If your assets are above the value allowed, the Bankruptcy Court could potentially sell them to pay your creditors.
Depending on which state you live in, you may be entitled to select between State exemptions and Federal exemptions which are different laws that protect different assets in different ways. The safest way to ensure that all of your assets are protected is to consult with a lawyer for bankruptcy evaluation.
If you are interested in learning more from an attorney in bankruptcy practice, call us today at 212-315-3755 for a free consultation. We are conveniently located on the corner of 34th Street and 5th Avenue in Midtown Manhattan and our offices are open Monday through Saturday.