chapter 7 7 Ways You Can Kill Your Credit Score

Rachel — Thu, 25 Aug 2016 07:34:41 +0000

7 Ways You Can Kill Your Credit Score Rachel Thu, 08/25/2016 - 03:34

Don't kill your credit with sloppy mistakes
Image Source: Flickr CC User Ken and Nyetta

When you’re just coming off a Chapter 7 or Chapter 13 discharge, rebuilding your credit is imminently important. And even when your credit is back on track, you must work at keeping it high. Here are seven of the fastest ways to kill your credit score – avoid these actions to keep your FICO score from tanking.

#1 Missing a Bill Payment That Reports to Credit Bureaus

You may think that missing payment after payment will erode your credit score over time. But in fact, a recent study by FICO (the company that develops credit score calculations) showed that the first time you miss a payment that reports to the credit agencies, your score can drop by up to 100 points (or more). Subsequent late payments actually don’t hit as hard as that first missed bill.

#2 Getting Too Many Credit Cards

This is a double-edged sword. If you don’t ever get new cards, your score can drop because having new accounts tends to boost your score. But if you have too many, your credit can also take a beating. Plus, if you have a large number of cards in your wallet and then run into a financial hiccup like a job loss, you might be tempted to max out those cards to get out of trouble – landing yourself deep in debt once more.

#3 Getting Rid of Credit Cards

Closing older accounts can also hurt your credit. Part of your credit score is calculated by averaging out the length of your credit history. Getting rid of an older card usually drops the average age of your credit – resulting in a dip in your score. Instead of closing an older card that may have less than favorable terms, talk to the card issuers about making your terms better or converting the account to another type of card.

#4 Running up Credit Cards

The best credit score will come from having multiple credit cards and lots of available credit – and NOT using all of it or carrying any balances. Not only can carrying balances cause costly interest charges, but carrying debt month to month tends to be a slippery slope. You’ll accumulate more and more interest charges, rack up debt, and end up lowering your credit score.

#5 Applying for Too Many Cards at Once

When you apply for new credit, your application generates an inquiry that shows up on whatever credit report the creditor relies upon (they'll typically check with just one of the three agencies – Equifax, Transunion and Experian). Each inquiry can lower your score a bit, and the more inquiries, the harder the hit to your score. After a few months the impact lessens, but sending off a bunch of applications at once isn't a good idea.

#6 Failing to Monitor Your Credit Reports

You should check on all three of your credit reports every so often to make sure there are no errors, no one has taken your identity and opened fake accounts, and that there are no collection items showing that need to be taken care of. It’s a good idea to pull each of your reports at least twice a year and go through them with a fine-toothed comb.

#7 Assuming Your Credit Score Is Good

A shocking number of consumers don’t know what their credit score is and don’t realize they need to monitor it. Your score can change and you won’t know it. It’s a good idea not only to check all three of your credit reports periodically but to sign up for a monitoring service that will notify you if your score itself changes. This can alert you to situations you need to correct.

Having good credit is something you need to work at – it doesn’t just happen. To find out more about improving your credit score after bankruptcy, contact Credit Score Keys today. We help North Carolina consumers get their credit back on track after a Chapter 7 or Chapter 13 bankruptcy.

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Changes to FICO Credit Score Calculation Can Benefit Those Dealing with Medical Debt

Rachel — Thu, 18 Aug 2016 07:04:26 +0000

Changes to FICO Credit Score Calculation Can Benefit Those Dealing with Medical Debt Rachel Thu, 08/18/2016 - 03:04

FICO score changes may impact the effect of your medical debt on your credit
Image Source: Flickr CC User Jay Gorman

The purpose of a credit score is to help potential creditors and lenders assess whether you’re a good risk for a loan, credit card, or other debt. Your credit score should reflect your financial behavior. But when it comes to medical bills, your FICO score sometimes puts you in a worse light than you deserve. Fortunately, new credit score models may change some aspects of your financial track record – including medical debt.

New Scores Will Reduce the Impact of Medical Bills

Before the new FICO scoring models were developed, all bills weighed similarly on your credit report. Leaving a credit card bill unpaid could affect you in the same way that an unpaid doctor bill would – but medical debt is often not an accurate assessment of your financial behavior. Even those with health insurance (a greater percentage now thanks to the Affordable Care Act) can still be stuck with unmanageable out-of-pocket costs through no fault of their own. In fact, roughly 20% of US workers (those out of school and pre-retirement) have medical debt they cannot afford to pay.
And some cases, medical bills may linger because the consumer is working with their physician or insurance company to get a billing issue corrected for an expense that insurance should have covered. In other cases, the medical provider might not send their statement to the patient in a timely manner – or the insurer could mishandle the bill. Under the old FICO scoring model, all this would have negatively impacted your credit score.

How FICO 9 Calculations Change the Weight of Medical Bills

The FICO 9 score lessens the impact of medical debts in collection on your credit score. You may not realize this, but when one of your debts goes bad and your creditor turns it over for debt collection, this event triggers a second entry on your credit score. You may end up with two entries for a single debt – one from the creditor and one from the debt collection agency. In some cases, that means the effect on your credit score can be doubled.
But with FICO 9, medical debt collections will carry lesser weight. If medical bills are your only negative items, you may see a credit score increase of 25 points or more from nothing more than this change in the calculation. However, it’s important to know that not every creditor or lender will use this new scoring model. The FICO score is a subscription service, and creditors can subscribe to whichever version of the score they prefer.

Who Will Be Affected by the New Scoring Model?

Veterans, in particular, may be harder hit by medical bills if they rely on the VA for their medical care. If the VA is slow about processing a service payment for medical treatment for a veteran, the veteran may end up with a collections agency pursuing them for debts the VA should have paid. That doesn’t seem fair, but it’s the harsh reality. But with this new scoring model, the effect of the VA’s late payment habits would not affect a veteran’s credit score as much.
Do you have medical bills you can’t pay? If you’re overwhelmed with doctors' bills and can’t dig your way out, Chapter 7 bankruptcy offers the chance to have all your medical bills completely discharged within weeks of filing. This can be life changing. Then, after you file bankruptcy and clear your financial slate, you can get a fresh start by working to improve your credit score.

To find out more about rebuilding credit after bankruptcy, contact Credit Score Keys today. We help North Carolina consumers bounce back after bankruptcy and get the credit they deserve. Call 919-495-2365 today for a free consultation about improving your credit score after bankruptcy.

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3 Simple Steps to Improve Your Credit Score – How to Keep Your FICO Climbing After Bankruptcy

Rachel — Thu, 21 Jul 2016 07:30:28 +0000

3 Simple Steps to Improve Your Credit Score – How to Keep Your FICO Climbing After Bankruptcy Rachel Thu, 07/21/2016 - 03:30

Credit cards can help your credit score
Image Source: Flickr CC User Ed Ivanushkin

Many consumers don’t truly understand how credit scores are calculated and are surprised that their scores don't improve despite their best attempts. That’s because the FICO calculation is complex and involves factors that North Carolina consumers might not be aware of. Here are three simple steps that can help improve your score.

#1 Pay Down Credit Card Debt – Then Keep it Low

Credit card utilization is an important factor in your credit score. You need credit cards and a mix of other credit lines and debt to keep your credit score on the rise. After bankruptcy, some NC consumers don’t want to end up in credit card trouble again and may try to avoid them altogether. That’s admirable, but without credit cards, your score will never be as high as it could be.

Instead, having credit cards and learning to use them with restraint and discipline is key. First, you should never have more than 30 per cent of your credit line consumed when your credit card statement closes each month – but even that amount can lower your score depending on your income, credit score range and other factors.

The safest approach is to use your credit cards each month, then pay off the balances in full. To do that, don’t use your plastic for things you don’t need. Use your cards to fill your gas tank, buy groceries and pay bills since that’s money you'd need to spend anyway – then turn around and pay off the card in full on your payday just as you would use the money to pay those bills. That way, you’re using your card without amassing debt.

#2 Work Toward Credit Limit Increases

Having higher lines of credit can increase your credit score, as can using only a small percentage of them. If you must carry some credit card debt, having high limits means that the debt represents a smaller percentage of your total line of credit.
For instance, if you’re stuck with $2000 of debt you’re trying to pay down on a total credit line of $5000, that’s 40 per cent utilization. That’s high and can lower your score. But if your credit lines are bumped to $10,000, four grand is just 20 per cent utilization. With a $20,000 credit lines, that $2000 is just 10 per cent utilization. That’s even better.
So how do you get your credit lines increased? Simple. Use your cards often. Pay off your balances. Never make a late payment. Never make a payment lower than the minimum. Sometimes credit limits are raised automatically to reward good customers, and sometimes you have to ask. Don’t be afraid to ask for a credit line increase – the worst the card issuer will say is no. If you’ve been making on-time payments and using your cards, make the call to all of your card issuers to ask for increased limits. In some cases, you can request a credit line hike via their website.

#3 Set up Alerts for Your Credit Reports and Card Statements

Keeping inaccurate info off of your credit reports and protecting yourself from fraud and reporting errors is important, especially since it can be much harder to clean up mistakes, errors, or identity theft the longer it goes on. By signing up for credit score and credit activity alerts, you’ll know right away if something changes on your credit score.

Careful monitoring will let you know if your credit score is increasing or decreasing, which is important. But it also lets you know when new accounts or credit cards are opened. If you didn’t open them, you can get them shut down ASAP so that fraudulent activity doesn’t ruin the credit score you’re working hard to improve.

Use text alerts on your credit cards as well. By setting these up, you’ll know instantly if someone has stolen your card (or card info) and is using it for unauthorized activity. You can also set alerts to let you know if you’re getting close to your card limit, or to notify you about payment due dates so you never run late on a bill.

To find out more about improving your credit score after bankruptcy, contact Credit Score Keys. We help North Carolina consumers get their credit scores back on track after you get debt relief from Chapter 7 or Chapter 13 bankruptcy. Call 919-495-2365 to learn more today.

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How to Get Rid of a Judgment Lien with Chapter 7 or 13 Bankruptcy

master — Mon, 19 Jan 2015 15:20:59 +0000

How to Get Rid of a Judgment Lien with Chapter 7 or 13 Bankruptcy master Mon, 01/19/2015 - 10:20

When you are sued over an unpaid debt – typically for credit card debts, medical bills or the remaining balance after a car was repossessed – if you lose the lawsuit, the court can issue the creditor a judgment against you. With this judgment in hand, the creditor can pursue you more aggressively. In many states, judgments can be used to obtain wage garnishments. In North Carolina, creditors generally aren't allowed to garnish wages except for support payments, incomes taxes or student loans. But that doesn't mean they can't go after other assets and that's where the judgment lien comes into play.

How a judgment lien affects you
Once a creditor obtains a judgment they can get a lien against any real property you own. This means they can apply the lien towards your home and try to force it into foreclosure in order to recover the amount you owe them. Judgments are particularly devastating because they are good for a period of 10 years with a 10 year extension available. This means that while there may be no equity in your home now, the creditor can wait you out and hope your circumstances turn around and then come after you.

How bankruptcy can help with judgments
If you have been hit with a judgment but it hasn't yet gone to the lien phase, bankruptcy can typically void the judgment out and stop the process from getting more serious. But if there has already been a lien attached to your property, the bankruptcy can void the judgment but the lien can linger on and complicate your bankruptcy. If the lien is on your home and you surrender the property as part of your bankruptcy because you have no equity in the home and can't afford to keep it, the lien will follow the property. But if you keep your home after bankruptcy, that lien can survive and the creditor can later push for foreclosure to satisfy the debt owed to them.

When a lien can be avoided in bankruptcy
If you have a lien on your home or other real property such as land, a lien may be able to be avoided in bankruptcy depending on your circumstances and so long as your attorney files a Motion to Avoid the Judicial Lien. Your bankruptcy attorney will evaluate your situation to see if you're eligible to have the lien avoided. This is done by looking at the available bankruptcy exemption on your property, any creditor liens and other liens. This is then compared to the value of your real property. If the total exceeds the property value, you may be eligible to have your lien avoided (i.e. gotten rid of).

Find out more about judgments and liens in bankruptcy

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How Long Can You Stay in Your Home if You Surrender it in Chapter 7 Bankruptcy?

master — Fri, 26 Dec 2014 18:59:19 +0000

How Long Can You Stay in Your Home if You Surrender it in Chapter 7 Bankruptcy? master Fri, 12/26/2014 - 13:59

If you're deep in debt and behind on your mortgage, you may be scrambling for solutions. Chapter 7 is an answer to many debt dilemmas and can even help you sort out a mess with your house. One of the options that many people aren't comfortable considering, though, is surrendering their home. It's a scary idea - letting go of the home you bought, lived in and cared for - but if you truly can't afford the home, it may be inevitable.

Two important thing to know about Chapter 7 is that it can get you out from under a property you can't afford, but can also buy you some time to pull together money for a rental or a down payment on a rent-to-own or property purchase in your spouse's name. In short, it gives you breathing room. Today we'll look at circumstances where you may want to consider a surrender, how it can benefit you and the options it opens up for you.

When to consider a home surrender
If you can't afford the payments, you can't afford the home. That's just math. And if you've fallen behind on payments that were once affordable but now are not either because you lost your job or have an adjustable rate mortgage and the payments have increased greatly, you may want to surrender to get a clean slate. If you owe more on your mortgage than the house is worth and you're struggling to make payments, this is a circumstance where you may want to consider a surrender.
However, if you have significant equity in the home, you don't want to walk away. Filing Chapter 13 to stave off foreclosure and then putting the home up for sale or trying to arrange a short sale may be a better option to try and extract the equity from your home if you can't afford to keep it. A Chapter 7 surrender doesn't have a mechanism to get that equity back to you. In short, equity, property value and ability to pay the mortgage are the deciding factors. Speak with an experience bankruptcy attorney to help you evaluate how best to move forward.

How foreclosure operates in bankruptcy
Even if you choose to surrender a home you can't afford as part of your bankruptcy, there is still a process that has to happen. First, you file your petition including the intent to surrender the home. Next, the mortgage company will file a Motion for Relief from the automatic stay. This means they are asking the court for permission to continue foreclosing even though the automatic stay generally prevents this. Your attorney can push back to try and slow this to buy you more time, but this may not be necessary – time is often part of the process with foreclosure.
If you don't protest, the Motion for Relief will be granted (or it may be granted even if you push back) and your lender is free to file to foreclose. However, this doesn't mean they'll run right out and do so. Some lenders have a backlog of foreclosures to process and some are known not to rush to foreclose as a practice. It will largely depend on the value and condition of your home and the real estate market in your area. Some lenders may not file the Motion for Relief and may just wait out your Chapter 7 discharge and then file for foreclosure. This gives you even more time.
How long does foreclosure take?
The notice of intent to foreclose lets you know the bank is calling in the loan and that your property will go up for auction. 99% of the time, it is the lender that buys the property at auction so they don't take a loss on the mortgage. Once the auction happens, the property is then owned by whoever bid highest, usually the lender or some company associated with the lender. But this doesn't mean you have to leave the home yet.
In fact, it can be months between the auction sale and the notice for you to vacate the premises. The longer you stay put, the more money you can save up. Once the notice to vacate arrives, you'll have about 30 days to get your stuff out or face the knock at the door of the sheriff. 30 days should be enough time to find a rental property and get moved. Worst case, you can store your stuff and stay at a hotel or with a loved one until you can get into a property.

Why you should stay put as long as you can
Just because you've decided to surrender your property doesn't mean you should pack your bags and go. In fact, this can cause you even more trouble. Here's why. If you move out and the property falls into disrepair, you can be fined by the Homeowner's Association or the municipal government if the property is still titled in your name.
A notice of foreclosure doesn't mean you no longer own the property and even after a sale at auction, the deed may remain in your name for months until the purchaser gets around to filing with the county. Read this blog we wrote about how to protect yourself in cases like this, but it's important that you don't let the house get you into trouble before it's formally handed off to your lender.

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Why Chapter 7 Is Almost Always Better for You – Even If You're Trying to Stop Foreclosure

master — Tue, 26 Aug 2014 18:04:11 +0000

Why Chapter 7 Is Almost Always Better for You – Even If You're Trying to Stop Foreclosure master Tue, 08/26/2014 - 14:04

In the Middle District of North Carolina, more bankruptcy filers choose Chapter 13 than Chapter 7 – it's opted for 20% more than the full discharge plan. But is this the best option for the majority of bankruptcy filers? Chapter 13 can be very useful to get a reprieve for those drowning in student loans and to get second mortgages stripped away when there's not enough equity to support them. But, as we wrote recently, Chapter 13s are more likely to not be seen all the way through to discharge. For many people, a Chapter 13, even if it doesn't last until discharge, serves a purpose.

But Chapter 7 offers more complete debt relief and may be better for many consumers. Even when we advise our clients to choose Chapter 7, many still opt for Chapter 13 and it's always the client's right to make the final decision on what type of bankruptcy is preferable to them. If you qualify for either Chapter 7 or Chapter 13, here are three things to consider if you're weighing one chapter versus the other to get the best possible results:

Feelings of Guilt
You may not want to choose Chapter 7 because it will wipe out most all of your unsecured debts and you feel guilt about not paying back what you owe. If you can afford to pay your debts, you absolutely should. But if you can't because you've had a major life event that's caused a financial set-back, freeing yourself of unaffordable debt is the responsible thing to do.

Challenges of Monthly Repayment
Chapter 13 bankruptcies are a challenge because the monthly repayment amount will eat up most of your income. By law, it has to. You won't get a Chapter 13 repayment plan and still have a ton of cash left over at month's end. What's more, you'll be living on an extremely tight budget for three to five years and, for many people, this isn't manageable in the long run.

Clean Up Your Credit Faster
Even though you're repaying more of your debts under a Chapter 13, your credit report will rebound faster when you don't pay debt and have it discharged under a Chapter 7. Here's why: Your credit report takes an immediate hit no matter which kind of bankruptcy you file, but with Chapter 7, within four months many of your back balances are cleared and your credit can start to improve. With Chapter 13, your score will continue to be impacted because many creditors will continue to report you as late throughout your repayment period.
If you're considering Chapter 13 to avoid a foreclosure, you should know that Chapter 7 will also buy you time to avoid a foreclosure. If your home is hopelessly upside down, opting for a Chapter 7 will allow you to stay in your home likely for enough time to save up for a rental home because you won't have to keep paying your mortgage once you file and can save up your disposable income and take that time to relocate.
We wrote an article recently you should check out on why you don't want to move out until your lender takes possession to protect your ability to get another mortgage later. There's another must-read on what to do while you're still in your home, filing bankruptcy and waiting on your lender to take possession – this can be four months, six months, even a year or two and if you move too soon.

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Why Chapter 7 Is Almost Always Better for You – Even If You're Trying to Stop Foreclosure

master — Mon, 25 Aug 2014 18:04:10 +0000

Why Chapter 7 Is Almost Always Better for You – Even If You're Trying to Stop Foreclosure master Mon, 08/25/2014 - 14:04

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What Happens to Your Car in Chapter 7 Bankruptcy? Depends on Your Payment Status and Value

master — Fri, 16 May 2014 13:08:14 +0000

What Happens to Your Car in Chapter 7 Bankruptcy? Depends on Your Payment Status and Value master Fri, 05/16/2014 - 09:08

In most areas of North Carolina, a vehicle is a necessity. You need something to drive to get to work, to the grocery store, to pick your kids up from school and activities and to conduct your life. If you're so deep in debt that you need a serious solution like bankruptcy, you may worry that you will lose your car or truck. Most likely, this is not true. But there are a couple of different factors including the type of bankruptcy you file, how much your car is worth and whether you are current on your payments. Let's look at these.

What If You're Behind on Car Payments?
If you are several months behind on your car payment and file a Chapter 13, you should be able to keep your car by catching up on payments over the term of your repayment plan, which is typically three to five years. For instance, if your payments are $300 per month and you are three months behind, you owe $900 plus (as an estimate) $300 in late fees and additional interest. If your payment plan is five years, $20 per month of your Trustee payment would go to satisfy that balance ($1200 / 5 years / 12 months). Also with Chapter 13, it's possible to get a break on your car note as part of your filing.
If you owe more on your loan than your vehicle is currently worth, your attorney may be able to get the court to reduce the amount of that debt down to fair market value. And you may also be able to get a more favorable interest rate, as well. If you're behind three months on car payments and file a Chapter 7, it's likely that your lender will demand that you relinquish the car. This may be upsetting, but with the debt relief offered by this type of bankruptcy, you should be able to afford a replacement vehicle.
What If You're Current on Car Payments?
If you are current on your car payment and file a Chapter 13, you should be able to keep your vehicle. Like in the above paragraph, even if you are current on your payments, your attorney should be able to seek a cramdown on both the amount of your loan and the interest rate if the debt owed exceeds fair market value and the interest rate is high.
If you are current on your vehicle payment and file a Chapter 7, you should be able to keep your car, but may need to reaffirm your debt if your lender requests it. Otherwise, if you keep paying your payment each month, everything should be fine. Another option with a Chapter 7 is called redemption, but it requires cash to do it. You can get a type of cramdown that will reduce the debt down to the fair market value of the vehicle, but then this amount must be paid in a lump sum rather than it reducing your loan amount. If you can get an advance from work or a low (or no) interest loan from someone to do this, it can be very advantageous.

What If You Own Your Vehicle Free and Clear?
If you own your car free and clear and file a Chapter 7, your can exempt up to $3,500 in fair market value. If your car or truck is worth more than that, you may be able to use some or all of your remaining wildcard exemption of $5,000 to protect your vehicle. If your auto is worth more than can be protected, the Trustee may ask that it be sold to satisfy your debts, but your attorney can fight this.
The idea of doing without a car may frighten you, but this should not be the guiding factor in which type of bankruptcy you choose. Instead, it should be based on the type of debt you have, whether they are secured or unsecured, your delinquency status and your income. A reputable North Carolina bankruptcy attorney can advise you what's best for your unique circumstances. Contact the law offices of John T Orcutt now for a free consultation on getting out of debt now.

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Why Debtors Choose Chapter 13 Over Chapter 7 Bankruptcy and Why It May Be Better For You

master — Wed, 14 May 2014 13:05:08 +0000

Why Debtors Choose Chapter 13 Over Chapter 7 Bankruptcy and Why It May Be Better For You master Wed, 05/14/2014 - 09:05

Many of our clients that come in for their initial free consultation aren't sure which type of bankruptcy is best for them and many aren't clear on the differences between the most common chapters – seven and thirteen. Our first job is to educate you on both of the plans and then look at your unique financial situation and explain what each plan offers to you and the benefits and downsides to each. From there, we make a recommendation but, ultimately, it's your decision because it's your financial future. For our clients that choose Chapter 13, there are two primary reasons we recommend this plan over Chapter 7.

First, there are those clients that cannot pass the Means Test that would allow them to file a Chapter 7. Ever since the bankruptcy code was amended in 2005, it has become more difficult to file Chapter 7. Those that have higher incomes will not pass the first phase of the Means Test, but they may pass the second part if they have minimal disposable income.
For those that have expenses above and beyond those “allowable” for calculation of disposable income, it may appear that they have more disposable income to pay bills than they actually do. But the Means Test is a hurdle that is mandated by law. Those of our clients that cannot pass it but still need debt relief are often well served by filing a Chapter 13. This allows them time to get caught up on payments and typically see some of their unsecured debts discharged at the end of their repayment plan.
The second type of client that ends up with Chapter 13 is one that has secured debts they are behind on and want the opportunity to catch up on to preserve the asset. If you are behind on your car loan or mortgage and are being threatened with repossession of your vehicle or foreclosure on your home and you want to prevent it, Chapter 13 can help, depending on your other circumstances.
With a mortgage, the payments you have missed plus any late fees or additional interest can be paid off over the length of your repayment plan – anywhere from three to five years. You may also be able to work with your lender to refinance your loan so that your current payments are more affordable. Filing a Chapter 13 also has the added benefit of shutting down any foreclosure action which can give you more time to negotiate with your lender to get the best deal possible to keep your home.
When it comes to a vehicle loan that's delinquent, you'll still have to catch up the arrears, but this can be done through your payment plan over time rather than as a lump sum. And what's even better is that if you owe more than your car or truck is worth, your attorney can request that your loan amount be reduced to the fair market value of your vehicle. They can also push to get your interest rate lowered. This can leave you with time to pay off the back balance and much lower future payments, which can make a huge difference in your budget and ability to pay your bills.
Contact the law offices of John T Orcutt for a free consultation to discuss your financial difficulties and to find out how bankruptcy can help. We have several convenient North Carolina locations for you to choose from.

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