Consumer Debt Bankruptcy

Decide IF its time to file for debt bankruptcy RELIEF

Filing for bankruptcy is the ultimate, last resort of credit card debt relief. You may feel like you are admitting defeat, but there are many cases where this is really the best option for you to get out of debt and start over. In fact delaying the decision of filing debt relief bankruptcy will risk more financial losses and cause more damage to your credit history. You are not the first, nor the last person, who has to decide whether to file for bankruptcy. However debt relief bankruptcy is a complex, legal debt relief process that requires expert advice to ensure that you achieve the best outcome and move forward with your financial life.

Pre-Bankruptcy Counseling

Pre-bankruptcy counseling

Pre-Bankruptcy Credit Counseling is a requirement of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005. It is intended to avoid abuse of the bankruptcy legal process by those consumers who should use other debt relief services to solve their financial situation.

Basically this counseling process gives you an idea of whether you really need to file for bankruptcy or whether an alternative debt relief payment plan is a better solution for you. This counseling process is required regardless if it is obvious that an alternative debt relief option is not viable for your financial situation. That is, your debts are too high and your income is too low or you are facing debts that you find unfair and don’t want to pay.

The credit counseling agency will prepare a budget based on your income and expenses, and then review your options for repaying the debt. In most cases, the agency confirms that you don’t have any feasible options for dealing with the debt other than filing for bankruptcy.

The BAPCPA law requires only that you participate in the credit counseling. You are not required to agree or accept the agency’s payment proposal. However you will be required to file the credit counseling proposal along with your other bankruptcy documents.

 

Chapter 7 Bankruptcy

Chapter 7

Chapter 7 is the basic liquidation bankruptcy for individuals and is the most popular. It’s goal is to liquidate all of the individual’s assets to pay off the consumer’s creditors.

If you choose this option you must be prepared to lose property and/or be subject to liens and mortgages. The court appointed bankruptcy trustee manages the liquidation of all nonexempt assets under law-mandated procedures and use the proceeds to pay your creditors back. Most people who file bankruptcy can use asset exemption laws to their benefit and retain their property.

An individual must pass the means test if they have above-average income based on similar filings in their state. Also a consumer must also receive credit counseling months before filing for Chapter 7 (with few exceptions). The individual cannot have filed under Chapter 7 or any chapter if a prior bankruptcy petition recently was dismissed by the court

Chapter 11 Bankruptcy

Chapter 11

Chapter 11 bankruptcy is a legal process for a corporations, small business and partnership to restructure its finances through a plan of reorganization approved by the bankruptcy court. By reducing obligations and modifying payment terms, a Chapter 11 bankruptcy can help a business balance its income and expenses, regain profitability, and continue in operation. Under Chapter 11, the debtor also can sell some or all of its assets so it can downsize its business if necessary or pay down claims that it owes.

Normally no court trustee is appointed to oversee the operations of a business debtor filing Chapter 11. Instead, the debtor continues to operate its business in the ordinary course as the “debtor in possession” (DIP). However the bankruptcy court can appoint a trustee to take over operations from the debtor if it finds sufficient cause, such as fraud, dishonest or gross mismanagement.

However the business debtor does loses control over major decisions to the bankruptcy court. The bankruptcy court must approve for example:

    • Selling of major assets, such as equipment or real estate.
    • Entering into or breaking a lease.
    • Entering mortgage or other secured financing arrangements that allow the debtor to borrow money after the case is filed.
    • Shutting down or expanding business operations.
    • Entering into/modifying union, vendor, licensing, and other agreements.

Chapter 13 Bankruptcy

Chapter 13

Anyone who is not permitted to file Chapter 7 bankruptcy will be directed to Chapter 13. Chapter 13 bankruptcy, unlike the former, is a court-approved plan for an individual to repay all or part of his/her debts over a period of three to five years. This form of consumer debt relief bankruptcy option adjusts an individual’s debt obligations in a way that the consumer’s debts are repaid, as much as possible.

It is a typical form of debt consolidation for individuals with steady source of income. If the income is within the middle or high income bracket (means test), unsecured debts will not be immediately discharged. However the individual will be allowed to keep some of the valuable assets that would have been liquidated under a Chapter 7 bankruptcy. Because it does not require liquidating all assets, an individual may be able to keep his/her home, as long as the court mandated payments are continued.


Debt Bankruptcy Relief Considerations

Is It Right For You?

A consumer debt bankruptcy relief option is one you might need to exercise when you have no other means to get out of extreme personal debt. This is when your financial situation is in terminal state. It is the option of last resort due to its long-term negative impact on your personal assets and  creditworthiness.

Consumer bankruptcy law exists to help people who have taken on an unmanageable amount of debt to make a fresh start. But it isn’t a simple process and doesn’t always lead to a happy ending. Make sure that you are really, really sure about it.

The consequences of debt bankruptcy are significant, require careful consideration and legal advice should be consulted before taking this decision. Your credit history and personal life will be negatively affected for an extended period of time. Filing debt bankruptcy should not be considered unless you have reviewed all other debt relief options.

But bankruptcy isn’t the end but often the first step toward a new life.  For many, it is the best and only sensible debt relief option for solving excessive debt problems that can happen unexpectedly in life.

If you find yourself in a situation where you are drowning in debt, with no solution in sight, you owe it to yourself and family to seek legal advice as to the potential benefits of consumer debt bankruptcy.

Does It Affect My Credit?

Yes it does.   It is trashed.  A consumer debt bankruptcy judgement is the most negative entry on your credit report.   It is simple to understand.  You  used the bankruptcy legal process to discharge your debt obligations and walk away from your creditors.

However, since you were already in a financial hardship situation prior to the consumer bankruptcy judgement, your credit history profile was already damaged due to late or non creditor payments.

Bankruptcy will affect your credit scores for as long as it remains on your credit reports. That’s because your scores are generated based on information found in your reports.

For a Chapter 7 bankruptcy judgement, it will remain on your credit report for ten years.  A Chapter 13 bankruptcy judgement is somewhat different because you agreed to repay your creditors in a three to five year period of time, so it will remain on your credit report for only seven years.

But the impact of your bankruptcy judgement on your credit scores will diminish over time.

Your credit scores should begin to recover even while the bankruptcy remains on your credit reports.  This assumes that you take steps to pay your bills in full and on time and use credit responsibly.

Your life goes on.

Credit Repair | Identity Theft

Frequently Asked Questions

Consumer Credit Repair

The Fair Credit Reporting Act (FCRA) was written in 1970 as an amendment to the Consumer Credit Protection Act. The FCRA provides additional measures of consumer protection in the areas of fairness, accuracy, and privacy of the information collected by the credit bureaus. It also allows you to personally engage in credit repair and maintenance processes, verifying that the information in your credit report is correct.

A credit bureau – sometimes called a “consumer reporting agency” – is a business that collects relevant consumer information from creditors and courthouses, and then sells that information to interested parties such as potential lenders. Such information is sold in the form of a credit report. In the U.S., the three major credit bureaus are TransUnion, Experian, and Equifax.

Normally negative items will remain on your credit report for seven years, with the exception of bankruptcy (ten years). You may choose to dispute a negative item, but if it is accurate, the dispute will be rejected and the item will remain on your credit report. However, if the negative item violated consumer protection laws, it may be removed.

When an account is unpaid for more than 180 days, a creditor usually writes off the debt as a loss on their financial statements. This is known as a charge off. Once a debt is charged off, it is either transferred to an in-house collections department or sold to a third-party collection agency who will likely contact you in attempt to recoup the balance.

The time it takes to repair your credit is completely dependent upon your personal situation. Six months should be your guide if you have many issues with your credit report.

It is a common myth that negative items must remain on your credit report for a minimum number of years. In fact, there is no minimum time-frame. Creditors control the information they provide to the credit bureaus. They can also choose to remove negative items as well. The Fair Credit Reporting Act requires all reported information to be fair, accurate, and substantiated. If these conditions are not met, the credit bureaus are required to remove it.

Credit Repair is actually the process of removing inaccurate, unfounded, out of date, false, and erroneous information from your credit report.  Your credit report dictates your credit score.  The 3 major credit bureaus collect information from lenders, creditors, and debt collectors and apply it to your credit report.  Based on that information, your credit score is determined.  This information could include the balances on loans or credit cards, credit inquiries, debt to income ratio, and most importantly, credit utilization (the percentage of debt you have to available credit)

This is determined by what your goal is.  Perhaps you are trying to buy a house.  If this is the case, you might want to get started at least 6-9 months before you plan on purchasing.  If you plan on purchasing a car, then you might to get started in 2-3 months.

You have the ability to dispute any information on your credit report you deem as inaccurate, unfounded, or incorrect.  However many consumers have tried doing this themselves only to find out that the process takes too long, is confusing, and full of challenges they deem too stressful to deal with themselves.  A third-party credit repair company can take the burden of disputing off your hands and have the ability to speed up the process through their experience.  Think of a third-party credit repair company like you would think of a Tax preparer, Legal Service, or even a plumber.  You could probably do it yourself, but perhaps not with the same end results. We highly suggest that all of our clients and prospective clients take some time to learn about their credit, credit reports, as well as the process of repairing their own credit.  You may feel doing it yourself is the better route for you and your situation.

A good credit score helps you obtain low interest rates and long term loans, like home loans or car loans. Lenders may charge high interest rates or impose undesirable repayment plans for you. Given the stakes and the consequences involved, it is clearly to your advantage to work toward recovering from a bad credit rating.

Credit Bureaus are companies that maintain records of your credit lines and performance. Records can go back for up to ten years, in the case of bankruptcy data. Creditors, banks, mortgage companies and other financial institutions supply this information to the credit bureaus. The credit bureaus then compile this data into your a credit report. A credit report has details of how you have managed credit in the past, so other lenders can judge your credit worthiness.

Most likely your credit report has errors.

The Federal Trade Commission reported in a study conducted in 2012 that 26% of the credit reports they analyzed had errors. Of those with errors, 5% who disputed these errors increased their credit scores at least 25 points. That is a significant change in a credit score.

You should not assume that your credit reports are completely accurate.

No. Your credit report is independent of your spouse. The same is true of your credit scores. However…

A lender will likely take into consideration both of your credit reports when deciding on a home mortgage, for example. If your credit report is bad and your spouse’s good you may find that the loan, if approved, has a higher interest rate than if both were good.

It certainly can. Many employers will do a credit check of a potential employee to determine the stability of the job candidate. For job positions that entail financial responsibility, it is most likely you would experience a credit report check.

When you are initially contacted by a debt collector regarding an unpaid debt, you have the right to request proof of the debt within 30 days of initial contact. This is called debt validation. Unless the debt collector can validate that you are responsible for the debt, they must stop all further collection efforts.

The debt validation letter from collector needs to include: 1) Proof the debt exists; 2) Proof that you are responsible for the debt; and 3) Proof that the debt collector has legal right to collect on the debt.

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Consumer Credit Repair

The Fair Credit Reporting Act (FCRA) was written in 1970 as an amendment to the Consumer Credit Protection Act. The FCRA provides additional measures of consumer protection in the areas of fairness, accuracy, and privacy of the information collected by the credit bureaus. It also allows you to personally engage in credit repair and maintenance processes, verifying that the information in your credit report is correct.

A credit bureau – sometimes called a “consumer reporting agency” – is a business that collects relevant consumer information from creditors and courthouses, and then sells that information to interested parties such as potential lenders. Such information is sold in the form of a credit report. In the U.S., the three major credit bureaus are TransUnion, Experian, and Equifax.

Normally negative items will remain on your credit report for seven years, with the exception of bankruptcy (ten years). You may choose to dispute a negative item, but if it is accurate, the dispute will be rejected and the item will remain on your credit report. However, if the negative item violated consumer protection laws, it may be removed.

When an account is unpaid for more than 180 days, a creditor usually writes off the debt as a loss on their financial statements. This is known as a charge off. Once a debt is charged off, it is either transferred to an in-house collections department or sold to a third-party collection agency who will likely contact you in attempt to recoup the balance.

The time it takes to repair your credit is completely dependent upon your personal situation. Six months should be your guide if you have many issues with your credit report.

It is a common myth that negative items must remain on your credit report for a minimum number of years. In fact, there is no minimum time-frame. Creditors control the information they provide to the credit bureaus. They can also choose to remove negative items as well. The Fair Credit Reporting Act requires all reported information to be fair, accurate, and substantiated. If these conditions are not met, the credit bureaus are required to remove it.

Credit Repair is actually the process of removing inaccurate, unfounded, out of date, false, and erroneous information from your credit report.  Your credit report dictates your credit score.  The 3 major credit bureaus collect information from lenders, creditors, and debt collectors and apply it to your credit report.  Based on that information, your credit score is determined.  This information could include the balances on loans or credit cards, credit inquiries, debt to income ratio, and most importantly, credit utilization (the percentage of debt you have to available credit)

This is determined by what your goal is.  Perhaps you are trying to buy a house.  If this is the case, you might want to get started at least 6-9 months before you plan on purchasing.  If you plan on purchasing a car, then you might to get started in 2-3 months.

You have the ability to dispute any information on your credit report you deem as inaccurate, unfounded, or incorrect.  However many consumers have tried doing this themselves only to find out that the process takes too long, is confusing, and full of challenges they deem too stressful to deal with themselves.  A third-party credit repair company can take the burden of disputing off your hands and have the ability to speed up the process through their experience.  Think of a third-party credit repair company like you would think of a Tax preparer, Legal Service, or even a plumber.  You could probably do it yourself, but perhaps not with the same end results. We highly suggest that all of our clients and prospective clients take some time to learn about their credit, credit reports, as well as the process of repairing their own credit.  You may feel doing it yourself is the better route for you and your situation.

A good credit score helps you obtain low interest rates and long term loans, like home loans or car loans. Lenders may charge high interest rates or impose undesirable repayment plans for you. Given the stakes and the consequences involved, it is clearly to your advantage to work toward recovering from a bad credit rating.

Credit Bureaus are companies that maintain records of your credit lines and performance. Records can go back for up to ten years, in the case of bankruptcy data. Creditors, banks, mortgage companies and other financial institutions supply this information to the credit bureaus. The credit bureaus then compile this data into your a credit report. A credit report has details of how you have managed credit in the past, so other lenders can judge your credit worthiness.

Most likely your credit report has errors.

The Federal Trade Commission reported in a study conducted in 2012 that 26% of the credit reports they analyzed had errors. Of those with errors, 5% who disputed these errors increased their credit scores at least 25 points. That is a significant change in a credit score.

You should not assume that your credit reports are completely accurate.

No. Your credit report is independent of your spouse. The same is true of your credit scores. However…

A lender will likely take into consideration both of your credit reports when deciding on a home mortgage, for example. If your credit report is bad and your spouse’s good you may find that the loan, if approved, has a higher interest rate than if both were good.

It certainly can. Many employers will do a credit check of a potential employee to determine the stability of the job candidate. For job positions that entail financial responsibility, it is most likely you would experience a credit report check.

When you are initially contacted by a debt collector regarding an unpaid debt, you have the right to request proof of the debt within 30 days of initial contact. This is called debt validation. Unless the debt collector can validate that you are responsible for the debt, they must stop all further collection efforts.

The debt validation letter from collector needs to include: 1) Proof the debt exists; 2) Proof that you are responsible for the debt; and 3) Proof that the debt collector has legal right to collect on the debt.

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