Tag Archives: filing for bankruptcy

Bankruptcy Alphabet – L is for Life

Life after bankruptcy - what does it look like?

Frequently, I’ll meet with clients who are (understandably) worried about life after bankruptcy. How bad is the worst case scenario? Will I have to live without credit for 10 years? Will I ever be able to rent again? Get a car loan? How about a mortgage?

Clients often associate bankruptcy with being thrown out on the street, all of his or her assets taken away, and picture printed on the front page of the newspaper announcing to the world that he or she filed for bankruptcy. It’s so easy to think that you’ll be branded and you’ll have to wear a scarlet letter around your neck announcing to the world that you’ve filed.

I have news for you. Bankruptcy is about preservation of assets and discharge (forgiveness) of debt. Even though there are a lot of stereotypes and stigmas tied to bankruptcy, it is a perfectly legal and legitimate way for people (and businesses) to get out of overwhelming debt.

Shame, guilt and other emotions about debt

Some of the most common things I hear from my clients are:

I feel so guilty. I feel ashamed.
I am a responsible person.
I never thought I’d end up in this situation.

Being under crushing debt is emotionally draining, puts a lot of pressure on you, your marriage, and your family. (Not to mention, your wallet.) Debt brings up a lot of emotions, and whatever you feel - it’s perfectly normal!

After discharge, you’ll be able to continue to live your life - debt free. All of your future earnings or assets are yours to keep, free from creditors’ claims.

The downside of bankruptcy?

The bankruptcy will be reported on your credit report for up to 10 years. Despite popular belief, this does not mean you cannot acquire new credit for 10 years. Some of the negative impacts of bankruptcy start to diminish as your debt-to-income ratio is improved and your credit score begins to recover.

Most of our clients report being able to get new credit cards shortly after discharge, and in general, you can qualify for FHA mortgage after 2 years.

You may also experience difficulty trying to rent a new apartment immediately after bankruptcy. You can avoid this problem by moving prior to filing. In addition, many landlords will consider overlooking the bankruptcy if you increase your deposit or offer to pay for several months of rent up front. (Read more about renting after bankruptcy here.)

There will be adjustments and challenges. But the point of the fresh start principle that underlies bankruptcy is that there is life after bankruptcy.

Image credit: chrisinplymouth
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Bankruptcy Alphabet: F is for Fraudulent Transfer

Today, we move down our alphabet list to F for Fraudulent Transfers.

Do you cut your own hair? Or fix your own brakes? How about self-diagnose and treat an illness? I only tried cutting my own hair once when I was 13. As you might imagine, it was a complete disaster. I cut my bangs to about 1 inch, and let’s face it - no amount of professional intervention can cure that. Now, I know. When it’s important, get professional help before endeavoring in self-help.

One of the biggest mistakes a person makes when s/he starts going into deep debt is attempting to hide assets by transferring or selling it for less than fair market value to friends or family. Transfer of assets with the intent to hinder, delay, or defraud is known as a “fraudulent transfer.” An example might be selling your car for $1 to your mom so that the creditors can’t take it or quitclaiming title to your home to someone you trust. Oftentimes, such a strategy is misguided, unnecessary and causes more problems than solving it. Remember, filing for bankruptcy does not mean you’ll lose all of your assets!

In bankruptcy, we are required to disclose transfers made within certain “look back” periods. So, in our example above, the sale for $1 will have to be disclosed. The trustee in the bankruptcy case can unwind or “undo” the transfer and get the car back then sell it for the benefit of repaying the creditors. Worse yet, fraudulent transfers can be the basis of denying discharge. What this means is that not only will you lose the car, but you can be still stuck with all of your debts!

I see clients making serious mistakes by exercising “self-help” which can be very costly to fix and like a bad haircut, no amount of professional intervention may be able to fix the screw-up. So, remember to ask your lawyer first before transferring property.

Other F’s from Bankruptcy Attorneys

Failure
Family Farmer/Fisherman
Financial Fatigue
First
Foreclosure
Foreclosure
Forgiveness of Debt
Forms
Fraud
Fraudulent Transfer
Future Flow Agreement

Image Credit: Leo Reynolds

How Long Will Bankruptcy Screw Up My Credit?

Written by San Francisco Bankruptcy Lawyer, Jeena Cho

I came across an excellent article by a fellow Charleston Bankruptcy Lawyer. Russell DeMott, which addresses the impact of bankruptcy on credit report. If you are concerned about impact of bankruptcy on your credit report, consider the following:

Your Credit Rating is Already Screwed Up!

My answer to this question is usually the same: “you already have bad credit.” The vast majority of clients who see me are delinquent on their debts. This, of course, is why they came to me in the first place. They have 30 day lates, 60s, 90s, lawsuits, judgments, and everything in between.

Having debts problems is like a tumor, though. You get rid of it two different ways: (1) you pay off the debt–and that’s not an option much of the time, or (2) you file bankruptcy and discharge it. If you do nothing, the tumor just grows and grows. Cutting it out allows you to heal. It allows a fresh start. And remember, for some of you your good credit rating got you into the mess you’re in. It allowed you to obtain too many loans, too many credit cards, insanely high credit limits, and to get just plain overextended. It was the financial industry’s idiotic blind faith in the almighty credit score at work. In case you didn’t know, your credit score doesn’t take into account your income or your assets. Those used to be pretty important for bankers. But those times are long gone. Actually analyzing a client’s entire financial picture would take too much work and require someone to actually think. So we have “thescore.” No thinking. It’s like magic. And that’s likely why some of you fret about the score too much.

Oftentimes, it’s not unusual for my clients to report a big bump in their credit score approximately 12 months after filing for bankruptcy. Why? Because of debt to income ratio.

Okay, okay. But How Long Will it Be Before I Have a Good Credit Rating?

Fair question. After all, you want to be able to refinance your house, buy a new house, or finance a car. For mortgage loans, the bankruptcy will “screw up” your chances at getting a mortgage for two to three years, depending on whether you do a conventional mortgage or an FHA mortgage. Interestingly, foreclosure is far worse than bankruptcy for your mortgage chances. Foreclosure screws you up for four years. So the damage caused by bankruptcy is not forever. And bankruptcy is better than doing nothing and allowing a foreclosure to happen.

This holds true for auto loans as well. In fact, you’ll be able to get an auto loan right after your bankruptcy is completed; you’ll just pay a high interest rate. No worries. The world is awash in used cars, and you’ll get a loan for one. If you must take this route, just don’t get an expensive car. Keep it at about $10,000 or less.

Most importantly, consider the fact that once you no longer have debt, you will be able to save and pay CASH for the things you purchase. That’s right. Cash. I practice what I preach and I made a decision to only buy what I have money for in my bank account. Not based on what I can borrow.

As Russ says…

The real issue is whether or not you can get through your financial problems without filing bankruptcy. If not, bankruptcy is your only option. If, on the other hand, you can avoid bankruptcy, you should. But in either case your credit will recover. You won’t be in financial purgatory forever.

If you need to file bankruptcy, worrying about your credit rating is senseless. If it’s not already bad, it probably will be very soon, whether or not you file bankruptcy. The concern should be solving your financial problems. And bankruptcy helps lots of people do that every day.

Can I keep a credit card if I file bankruptcy?

by: Jeena Cho, San Francisco Bankruptcy Attorney

One of the most common questions I get from clients is “Can I keep a credit card if I file bankruptcy?” The answer is generally “no.” For many clients who has relied on credit cards to get by on a daily basis, it’s difficult to imagine life without one. It’s important to keep the end result of bankruptcy in mind - a life without debt. Imagine being able to have a savings, a retirement fund, or your set money aside for your children’s college fund. For many who has been living paycheck to paycheck, on the edge, it’s often difficult to imagine.

In general, any debt you owe must be listed on your bankruptcy petition. This means that even if you have a balance of $1 on a credit card, it must be listed. The opposite of this is also true. If there is a $0 balance, it does not need to be listed. However, I discourage you from paying off a credit card with hopes of keeping it for the following reasons.

1. It will probably be cancelled anyway. Most financial institutions get electronic notices of bankruptcy. This means that most likely, even if the card is not listed, the bank will get notice that you have filed for bankruptcy. Even if the bank does not get notice of your bankruptcy, most credit card companies will run your credit report periodically and will most likely cancel your card.

2. Preference. If you pay any one credit card over another in excess of $600 in the 90 days prior to your bankruptcy, the Trustee in your case can get the money back from the credit card as a preference. This can cause delays in your bankruptcy, hence not advised.

You can get new credit after bankruptcy. (Although, I don’t recommend it.) Clients often tell me they received offers for car loans and credit cards shortly after filing for bankruptcy. It’s important to read the fine print as oftentimes, there is a very high monthly charge, interest rate and no grace period. The reason for these new offers are simple. After bankruptcy, you cannot file for 8 years (in case of Chapter 7 bankruptcy) and 4 years (in case of Chapter 13 bankruptcy). So, the creditors view such clients as “good bets.” The clients have no debt and can’t re-file for several years.

Almost any purchase requiring a credit card will accept a debit card. You can also get secured credit cards after bankruptcy (e.g., you give the credit card $1,000 in exchange for a credit card with a $1,000 credit limit). As mentioned in the beginning, I encourage you to save money after bankruptcy and live within your means.

This example is merely meant as an informational tool. You should consult with a San Francisco bankruptcy attorney to discuss the specifics of your case.