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Bankruptcy and Your Credit Score


What is a Credit Score

A credit score is a mathematical algorithm, typically updated monthly, used by lenders and service providers (i.e. utility companies) to determine your character, creditworthiness, and likelihood to make payments on time.

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Prior to the universal adoption of the FICO score in 1989, bankers would make a decision to lend money based on a “gut feeling”. Obtaining credit was all about who you knew. Many people were denied credit based on gender, race, nationality and marital status.

Conversely, the current credit score model allows any lender to obtain a picture of your current debts with outstanding balances, along with your repayment history.

Credit Bureaus and Credit Scores

While a credit score is a number, the data (your individual credit history) used to create is the score is provided to the bank or credit card company from a credit referencing agency, also known as a credit bureau.

Experian, Equifax, and TransUnion are the credit bureaus that compile your financial history and share this history with lenders by request.

Credit scores may vary slightly based on the credit bureau or lender that completed the calculation.

Improve your Credit Score

Lower credit scores can reduce your odds of being credit approved. A “good” credit score is typically over 700 (on a scale out of 850). If your credit score is not as high as you desire, follow these steps to increase your score:

  1. Dispute any incorrect findings
  2. Make all payments on time
  3. Pay off debt
    1. Keep credit card balances low
    2. Maintain a credit utilization of under 30%
  4. Credit utilization is your total debt divided by total available credit
  5. Assess unused credit card accounts
    1. Only close accounts if doing so will increase credit utilization %
    2. Fewer open accounts with the same overall debt may lower your score

Check Your Credit Report for Free

Visit Experian to check your credit report for free. Checking your own credit is a soft inquiry. Soft inquiries do NOT impact your credit score.

An updated free credit report can be accessed every 30 days. Outstanding balances on credit cards and loans will be reflected as well.

Monitoring your credit report allows you actively increase your score while becoming a more informed applicant.

Additionally, you can obtain a FREE credit score.

Bankruptcy and Your Credit Score

Chapter 7 and Chapter 13 can remain on your credit report 10 years. That being said, the three major credit reporting agencies voluntarily remove Chapter 13 bankruptcies after seven years. Chapter 7 bankruptcies remain on your credit report for the full ten years.

Read more on: the differences between Chapter 7 and Chapter 13

 

Filing for bankruptcy does not mean you are “doomed” for seven to ten years. A large majority of people notice an increase in the credit score within 12 months of filing for bankruptcy. This is a result of discharged debt and making payments on times.

Consult a Bankruptcy Attorney

The office of Cherney Law Firm LLC is committed to helping you get your finances and credit score back on track. Contact us at 770.485.4141 to schedule a free consultation to learn how bankruptcy can help you.

Why Bankruptcy Exists


Why Bankruptcy Exists

Estimated Reading Time: 3 min

Although bankruptcy has been in existence for 100 years, few understand its true purpose. Creditors owed money may balk and question why bankruptcy exists. As someone considering filing bankruptcy, the reason may be all too apparent.

Why Bankruptcy

The current bankruptcy code was enacted in 1978 as part of the Bankruptcy Reform Act of 1978. This code was a well overdue override of previous bankruptcy codes including the Chandler Act of 1938 and Bankruptcy Act in America from 1898.

No one wants to file bankruptcy. Nevertheless, personal financial obligations can all-consuming. After exhausting other options, bankruptcy can feel like a breath of fresh air.

The benefits and reasons for the existence of bankruptcy are two-fold.

Bankruptcy, first and foremost provides you with a fresh start. In fact, numerous bankruptcy code cases refer to the “fresh start” policy as “the essence of modern bankruptcy law” and one of its “primary purposes”.

While bankruptcy provides hope for the debtor, it additionally provides payment and protection to creditors.

Types of Bankruptcy

Before discussing the types of bankruptcy for individuals, it is important to clarify what debts can and cannot be cleared through the process.

Filing for bankruptcy protection can stop foreclosure on your home and repossession of property. Additionally, it can cancel many of your debts.

Therefore, not all debts can be cleared through bankruptcy. Student loans, taxes, and child support must still be paid after filing for bankruptcy protection.

Chapter 13

The majority of individuals looking for a “fresh start” do so by filing for bankruptcy under Chapter 13. This allows them to repay a portion of the debt over three to five years. The remainder of the debt is discharged.

Chapter 7

In extreme situations, a debtor may file Chapter 7 bankruptcy. This may be a viable option for people with excessive debts who are incapable of making payments at all. For example, Chapter 7 may be applicable as a result of lost income or due to the overwhelming nature of  debts.

Creditors

When discussing why bankruptcy exists, it is important to address creditors.

Bankruptcy laws provide equal treatment of creditors in the same classification. For example, creditors are classified as Secured, Priority, and General Unsecured. The trustee managing the bankruptcy must equally distribute money to all creditors in the same classification.

Secured Claims

  • Debts that are secured by an interest in property (called collateral).
  • A secured creditor can repossess collateral if debt is not paid
  • Common secured claims include mortgage and vehicle loans
  • If you surrender the collateral, debt is reclassified as general unsecured debt)

Priority

  • Includes child support, spousal support, and any other domestic support obligations.
  • Bankruptcy does not erase priority debts

General Unsecured

  • Includes credit card debts, personal loans, some utilities, and medical bills.
  • Lowest priority of all claims
  • Generally dischargeable.

When considering bankruptcy, remember that it exists for the creditor and debtor.

Just as debt collectors have rights in the bankruptcy process, you have rights too. The office of  Cherney Law Firm LLC is committed to defending your rights and seeking immediate protection under  Chapter 7 or Chapter 13 bankruptcy.  If you desire a free and confidential consultation in Cobb County to discuss how bankruptcy can benefit you, contact 770.485.4141 to schedule an appointment.

Bankruptcy Impact on Inheritance


Estimated reading time: 3 minutes

The decision to file for bankruptcy is complex.

 

Filing for Chapter 7 or Chapter 13 bankruptcy can provide a “fresh start”. Nevertheless, the process isn’t easy. Losing a loved one during that time can add to the difficulty. As a result, you should know the impact inheritance has on your bankruptcy case.

180-Day Rule

Any income, including payroll,  you receive within 180 days of filing for bankruptcy becomes part of the bankruptcy estate. Thus, any inheritance you actually receive within that 180 days becomes part of the bankruptcy estate.

Inheritance consists of more than financial payments. For example, if a will entitles you to property, that property is part of the bankruptcy estate.

While it may be tempting to wait 180 days to physically take possession of the inheritance income or property, however it won’t help. In fact, the bankruptcy law of 180 days abides by the date you became entitled to the inheritance.

Notification

If a loved one passes away and leaves you an inheritance of money or property within 180 days of filing for Chapter 7 or 13 bankruptcy, you must notify the bankruptcy trustee.

Contact your bankruptcy attorney to determine how and when to notify the bankruptcy trustee. Furthermore, amendments need to be made bankruptcy forms.  Cherney Law can determine the forms based on the type of inheritance such as money or property.

Inheritance as Part of the Bankruptcy Estate

Keeping an inheritance, similar to your other assets, when filing for Chapter 7 or 13 bankruptcy is dependent upon state bankruptcy exemptions.

Bankruptcy exemptions are types and amounts of property you can keep. In Georgia, you may keep a portion of home equity, life insurance proceeds, household items, and tradesman tools. Additionally, you can file an exemption for $5,000 of value in motor vehicles and $500 of value in jewelry. Georgia does not allow for Federal bankruptcy examples..

If your inheritance is not covered by a Georgia bankruptcy exemption, then the asset must be liquidated or sold for cash. In Chapter 7 bankruptcy, proceeds from liquidated assets are paid to creditors. Conversely, non-exempt inheritance assets are used for payment plan calculations in Chapter 13 bankruptcy.

Inheritance 181 Days After Filing

In Chapter 7 bankruptcy, if your loved one passed away more than 180 days after filing, entire inheritance is yours. Notification to a bankruptcy trustees or creditors is not required. Inheritance, regardless of date, is a factor in Chapter 13 bankruptcy. For this reason, non-exempt inheritance can be used to calculate your three- or five-year payment plan.

Spouse Receives an Inheritance

If you filed for bankruptcy apart from your spouse, then inheritance owed to them is NOT part of your bankruptcy estate. To this end, it is vital that your spouse keep the inheritance separate from marital assets. For example, if  a monetary inheritance is deposited into a joint checking account, the funds are then part of your assets and can be used to pay creditors.

Call us Today to Discuss your Inheritance

If you are expecting or recently an inheritance, you need to speak with an attorney about bankruptcy and inheritance. Cherney Law Firm LLC is an experienced Marietta-area bankruptcy firm. Contact 770.485.4141 to schedule a free consultation.

Post-Bankruptcy Credit Collections


Estimated reading time: 3 min.

Everyone experiences a credit collection call or two at some point in their lives. While some may receive more than others, none of us are exempt from the frequent interruptions to our daily lives when creditors call looking for the late payment owed to them. Sometimes it may come as a surprise, other times every ringtone makes you cringe and screen your calls because you know who is on the other end…again.

So let’s say you’ve successfully filed and completed bankruptcy

The debts that cause credit collectors to call you are now discharged, right? Once you’ve filed for bankruptcy, it is true that these calls should immediately stop. In reality, this may not be the case, and you may find yourself screening the same calls you did before, perhaps with a little more ease but with just as much annoyance. Luckily, you may be able to work with the same lawyer you trusted to help you complete your bankruptcy claim to discuss this and other issues after bankruptcy is completed.

How do I stop collection calls after bankruptcy?

Bankruptcy puts in place an automatic stay as soon as you file.

What is this? The purpose of an automatic stay is to protect you from phone calls, emails, and letters that are attempting to collect debts from you that you may find annoying at best and harassing at worst. Ongoing attempts to contact you regarding your debt by the creditor is illegal from this point forward and should cease unless the creditor has expressed permission of the court. With best intentions assumed, creditors use software systems that may take a little time to catch up to the automatic stay order. However, there may be other debt collectors that simply choose to ignore the law and continue to contact you for what is owed no matter what.

If you continue receiving calls after a reasonable amount of time has passed, you might assume that these creditors are breaking the law, especially if you’ve taken the time to inform them that you have filed and/or completed bankruptcy proceedings. In this case, it is beneficial to be knowledgeable about what your rights are and do not assume you have to live with harassing phone calls, emails, and letters. After all, these are stress-provoking even if you’re confident you no longer owe them money. In this case, get in touch with your bankruptcy attorney so they can assist in ensuring the creditors’ systems are up to date or to bring the matter into a court of law.

What Steps You Could Take

A few key things within your control to stop the harassment are to:

  1. Provide an explanation to your creditors
  2. Take detailed notes of each credit collecting interaction
  3. Contact your bankruptcy lawyer
  4. Take creditors to court.

While this may seem extreme, moving forward after bankruptcy while you continue to receive debt collection calls is challenging. If they won’t stop after initial simple steps are taken, suing them for harassment and emotional suffering may be necessary to stop the abuse.