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6 Things To Know About Your Credit Score

Rachel — Thu, 13 Apr 2017 08:27:15 +0000

6 Things To Know About Your Credit Score Rachel Thu, 04/13/2017 - 04:27

Do you know this about your credit score?
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Your credit score is important because it affects your finances as well as your career opportunities. Your credit score can even affect your personal life because some people take debt into consideration when forming relationships. It’s important to understand your credit score so you can nurture it and keep working on improving it. Here are six things to know about your credit score.

#1 You Don’t Have Just One Credit Score

Most people think of their “credit score” as one single thing. It’s not. You can have literally hundreds of different versions of your credit score. When you apply for new credit, the creditor will run an inquiry from one of the three credit bureaus.

Creditors can subscribe to a hundred different scores. The particular score is calculated from your credit report. There are different scores for mortgages versus auto loans and then others for other types of credit. Plus, your credit score can change week to week and month to month.

#2 Many People Don’t Check Their Credit Report

According to WalletHub, roughly 37% of consumers have gone longer than a year without checking their credit report – and more than 15% have never checked their credit report. That’s a problem. Without information, you won’t know if there is a problem with your credit score.

Regularly checking your credit score can be tough to remember. Instead, consider signing up for a low-cost credit monitoring service. Depending on the service you choose, you’ll be notified when your score changes and when there are positive or negative entries on your report.

#3 Many Credit Scores Have Errors

The FTC says about 20% of credit reports have errors on them. That means one in five people have an inaccurate credit report. It’s not likely that an error will be in your favor. Errors can run the gamut from benign to extremely bad for your credit score.

Some impactful errors include negative items like inaccurate debt collections or late payments that were really paid on time. The most problematic errors are identity theft when accounts are opened in your name. These can wreck your credit score and be troublesome to clear up.

#4 You Can Have No Credit Score at All

Did you know it’s possible to have so little credit activity or credit history that you have no credit score at all? About 10% of Americans don’t have a credit score or have one that’s too low to register, but most of these people are younger and just starting out.

The Motley Fool says roughly 80% of 18 and 19-year-olds have no credit score, but there are 45 million Americans with no credit score and not all of these are accounted for by those in their late teens. When you’re starting to rebuild your credit after bankruptcy, at least you’re not this bad off.

#5 Very Few People Have Perfect Credit

Another thing to know is that few people have “perfect” credit. The threshold for “excellent” credit is 720 and above. As of now, the average American credit score is 695 which is considered fair. No matter what your credit score is, you can always improve on it.

Credit scores range widely and you should never assume yours is worse than anyone else. Even people you think are doing well might be in over their head in debt and with a credit score that is much worse than yours. You just never know what’s going on with people in private.

#6 Your Score and Report Are Two Different Things

Many people get their credit score and credit report confused. They are two different things. A credit score is calculated from information on your credit report. There is nothing you can do directly to alter your credit score. It is simply math from a formula that can vary by each creditor.

Your credit report is something you can take steps to improve. If it’s errors, you can request corrections. If you don’t have enough credit, you can build it. If you have negative items on your credit report, you can work to diminish the impact by improving other aspects.

If you are struggling to rebuild your credit after bankruptcy, contact Credit Score Keys today for a free consultation. We strive to help you make the most of your financial fresh start. Call us today at 919-495-2365.

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Three Changes to the Latest VantageScore That May Help You

Rachel — Thu, 30 Mar 2017 07:21:32 +0000

Three Changes to the Latest VantageScore That May Help You Rachel Thu, 03/30/2017 - 03:21

When you think of your credit score, you most likely think about your FICO (Fair Isaac Corporation) score, but that’s not the only calculation out there. VantageScore is another big player in the credit score game. VantageScore Solutions just announced the release of their fourth-generation score, and it’s a game changer for many consumers.
Credit Karma and other services use VantageScore, and it’s a growing competitor for FICO that many lenders and creditors are increasingly using. If you’re applying for credit and have some negative items, you might get a better outcome from a lender or creditor that uses VantageScore 4.0 than a FICO calculation product. Here’s why.

#1 VantageScore 4 Puts Less Weight on Medical Collections

Medical debt can knock a considerable amount of points off your credit score. If you have medical debt collections on your credit report, it can hurt you even if it’s a bill owed by your insurance company but they’re dragging their feet on paying. Medical debt collectors don’t care if it’s your insurer’s responsibility and if it’s legitimate debt, it can hurt your score.

The new VantageScore doesn’t take into account medical debt that are 180 days and less since those can reasonably attributed to insurer delay. Some other negative items including some public records, will also weigh less on your score under VantageScore 4.0. This means that some tax liens and civil debts may not hit you as hard if your creditor is using this calculation instead of FICO.

#2 Artificial Intelligence Can Help Those with Little Credit

If you don’t have a lot of credit, you have what’s known as a “thin file.” This can happen for young people just getting into their first jobs and first credit. It can also help those who are restarting with their credit after bankruptcy or an extended period of credit inactivity. It sounds strange that AI (artificial intelligence) would play into this but it’s not sci-fi, it’s a tangible application.

VantageScore’s new AI modeling can offer a significant lift to thin files. This is a new arena for AI and credit scores and this new model may or may not take hold with creditors. A VantageScore Solutions rep says that using AI and “the most recent, cutting-edge model development and data techniques available” can expand borrower opportunities.

#3 Today’s Data vs. Trending Data

The FICO score is largely based on static data meaning it’s data from right now, a week ago, or a month ago. One example is credit utilization, which looks at the amount of credit card debt you have versus your total credit lines. If you pay for a car repair just before your credit card statement closes, you could have a high utilization and your score drops.

Then, a couple of weeks later, when you pay off your debt in full, your utilization is smaller and your credit score rebounds. You did nothing wrong, yet your score dropped, then raised. Trending data used in the latest Vantage Score looks at your credit habits over time rather than in just one moment, one week or one month. This helps creditors better assess your risk.

How to Benefit from the New VantageScore

Although it’s sometimes slow for lenders and creditors to adopt new credit score models, it’s still best to be aware how to take advantage of this new calculation when it does come online and begins adoption later in 2017.

Pay Your Credit Cards in Full

Because trending data better differentiates between those that occasionally have higher utilization and those that have occasional higher balances, you should try and pay off your cards in full every month. Those that carry balances are more likely to default according to these models, so paying off will give you a higher score predictably.

Stay on Top of Medical Bills

Because this new model only looks at medical bills older than six months, it’s imperative that you follow up aggressively with your insurance company to ensure they issue timely payments to your medical providers. Don’t sit back and hope they do right. Call and bother them until they pay so your credit score doesn’t take a hit.

If you’re just finishing up bankruptcy or have had your discharge for a few months, it’s time to get serious about improving your credit. Contact Credit Score Keys to find out more about rebuilding credit after bankruptcy.

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What Is the Difference Between a Credit Score and a Credit Report? Facts to Know About FICO

Rachel — Thu, 26 Jan 2017 08:30:36 +0000

What Is the Difference Between a Credit Score and a Credit Report? Facts to Know About FICO Rachel Thu, 01/26/2017 - 03:30

Credit score vs. credit report
Image Source: Flickr User CafeCredit.com

Your credit score will be critically important throughout your life for a variety of reasons. Your score is based on your credit report, and they are drastically different things. One drives the other, but you must keep your eye on both to protect your future, save money, and have the best opportunities for your career and finances.

Today, Credit Score Keys explains the difference between your credit score and credit report.

What Is a Credit Report?
Your credit report is an archive of your financial behavior for the last seven to 10 years (and sometimes longer). It is not a credit score, though, and there is no number to evaluate it. You have more than one credit report. In fact, you should have three credit reports.

There are three credit bureaus that archive credit history of consumers. Experian, Equifax, and TransUnion complete reports on everyone with credit activity in the United States. The longer your credit history and the more accounts you have, the longer your report will be.

Children should not have credit reports, and if you have no credit activity, credit accounts, or collections activity, you might not have one at all. If you have just a couple of credit items, it’s called a “thin” credit file. Here are some other facts about credit reports:

If a creditor ran your credit score to offer credit, they should report your activity.
The report will include accounts you’ve opened and closed as well as loans.
The report shows the history of your payment activity on accounts.
If you are late or go over your limits, that will reflect negatively on your report.
If you pay on time and keep your balances low, that reflects positively.
If you have been sued or garnished over debt, that will show on your report, too.

What Is a Credit Score?
Your credit score is a three-digit numerical value that is calculated based on data from your credit report. But like your credit report, there is more than one version. A FICO score is a branded credit score calculated by the Fair Isaac Corporation.

There are about 50 different FICO scores. Some are calculated specifically for mortgages and some for insurance purposes. There are also newer and older versions of FICO scores. Many creditors, banks, and lenders use FICO 8, but there are newer versions.

In addition to all the different types of calculations, each can be based on a different credit bureau report so that adds more potential scores to the mix. There are also proprietary scores calculated by the credit bureaus that are not FICO scores. Also, consider these facts:

Whether you pay on time or have late payments is a big part of the calculation.
How long your credit accounts have been open, on average, is also critical.
How recently you’ve applied for credit (called inquiries) also factors into the score.
A variety of accounts may benefit your score (mortgage, car loan, credit cards, etc.)
The less you use your available credit, the higher your score calculation.
Your score is not fixed and will likely change as activity reports to the credit bureaus.

What Is a Good Credit Score?
Credit scores run the gamut between 300, which is terrible, and 850, which is about as perfect as you can get. A score in the upper 600s is good and above 720 is very good. Your score may differ depending on which credit bureau report from which it is calculated. The difference is because each bureau has slight differences in reporting policies plus when a creditor pulls a credit check on you, it will come from just one bureau so several “hard inquiries” can lower your score from that bureau.

If you’re rebuilding your finances after filing bankruptcy, contact Credit Score Keys today for help improving your credit score. Call 919-495-2365 today for a free consultation for North Carolina consumers.

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7 Shocking Things That Won’t Affect Your FICO Credit Score

Rachel — Thu, 10 Nov 2016 08:48:47 +0000

7 Shocking Things That Won’t Affect Your FICO Credit Score Rachel Thu, 11/10/2016 - 03:48

Shocking things that don't touch your credit score.
Image Source: StockSnap.io

Some life events seem major to you, but, because the credit bureaus couldn’t care less about them, they won’t affect your credit score. Some of these surprising things are positive and some are negative in terms of your quality of life, financial status, and well-being, yet they don’t actually raise or lower your credit score. Take a look at these seven things you won't have to worry about affecting your credit score.

#1 Paying Your Bills On Time

We often mention that paying your bills on time is the first step towards re-establishing your credit. This is the foundation for financial responsibility, but a lot of the bills you pay won’t affect your FICO score whether you pay them on-time or late. Typically, utilities, rent, and medical bills can all be paid late without affecting your credit score. Paying them on time also won’t help your score.

#2 Earning A High Income

Earning a good wage makes it easier to pay your bills on time and keep your credit card balances low. However, simply earning a high salary won’t boost your score. In fact, some high earners have lower credit scores than middle or low-income earners because they overspend, carry too-large balances on their credit scores, or aren’t financially responsible despite their high wages.

#3 Criminal Activity, Arrest, Or Even Jail

This might surprise you, but being arrested for a crime won’t affect your credit—no matter the crime. Any criminal record is not reflected on your credit report and therefore not factored into your score. Even if you go to jail, your credit can remain in tip-top shape so long as your bills get paid while you’re in the pokey.

#4 Paying Or Filing Your Income Taxes Late

Income taxes can be troublesome for people who have their withholdings set too low or who might be self-employed and don’t set aside enough income to pay their quarterly or annual taxes. However, filing your incomes taxes late, paying late, or filing taxes when you’re unable to pay the amount due won’t immediately impact your credit score. If it goes into collections or a lien, that’s another matter.

#5 Checking Your Own Credit

Most people know that when they apply for a loan, credit card, or other financing, the potential lender or creditor runs a credit check. This is called an inquiry or a “hard pull.” These reflect on your credit report, and having too many hard pulls can drop your credit score for a while. Eventually, these inquiries lose their impact on your score and drop off your report. But checking your own score doesn’t hurt.

#6 Where You Get Your Income

If you lose your job or have financial strife and wind up on unemployment or taking some form of public assistance, that won’t affect your credit score so long as you pay the bills that report to the three credit bureaus. For those that rely on alimony and child support to get by rather than income from a job, that doesn’t matter either. Pay your debts, don’t overextend, and you’ll be fine.

#7 Getting Married Or Divorced

These are major life events that don’t impact your credit. Even if you marry someone with very good or very bad credit, your score won’t rise or fall. Marriage only impacts you if you finance something together. Divorce itself won’t impact your score, but it could mess with your ability to service debt. Marriage or divorce seem like big deals to you but will not directly affect your credit score.

To find out more about improving your credit score after bankruptcy, contact Credit Score Keys for a free consultation at our Raleigh, North Carolina offices. Call 919-495-2365 now for more information.

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Top Credit Score Myths Debunked—Tips for North Carolina Consumers

Rachel — Thu, 08 Sep 2016 07:03:56 +0000

Top Credit Score Myths Debunked—Tips for North Carolina Consumers Rachel Thu, 09/08/2016 - 03:03

Credit score myths debunked
Image Source: Flickr User Pabak Sarkar

Not everything you read about credit scores is true. It’s important to separate fact from fiction when you’re trying to improve your credit score after bankruptcy. Today, we will take a dispel five of the most common credit score myths.

#1 Carrying Credit Card Balances Improves Your Credit Score
Many websites claim that 30% is the “magic number” you should never go above when it comes to your available credit, but that number is a myth, and so is the notion that carrying a card balance will help your score. What helps your score is having lots of available credit you DO NOT use.
Credit card companies offer you enhanced limits if you use your cards and then pay them off. Using each of your cards regularly and paying off in full each month is a better way to improve your credit score. Paying bills with your card is a great way to use plastic while avoiding debt.

#2 There is Only One Type of Credit Score
When people think of their credit score, they usually think, “FICO score.” But did you know that FICO has a bunch of different versions of its score, and many lenders have their own scoring methods and don’t use FICO at all?
FICO uses info on your credit report to develop their score. Other firms can pull your credit report and use the info to develop their own score. So really, keeping your credit report in good shape is the most important thing since that feeds all the credit score calculations.

#3 You Only Need One Credit Card to Keep Your Score High
This is not true. What’s more troubling is that many Millennials now avoid using credit cards altogether and prefer debit cards so they avoid debt. Having a variety of credit card accounts, all being used and paid off promptly, will benefit your score more.
Many people think having one card in their wallet is enough, but that’s not the case. Occasionally getting new cards and keeping them active but with zero balances will usually give you much better results than having just one piece of plastic in your wallet.

#4 High Income Means a High Credit Score
Your income has nothing to do with your credit score. What’s important is that you pay your bills on time, use credit wisely, keep old healthy accounts open, and occasionally open new accounts. Higher income can help with this, but it’s not a direct correlation.
Lenders for mortgage and auto loans will take your income into account as well as your credit score when deciding whether or not to approve you for financing, but income alone generally won’t get you anywhere and doesn’t drive your credit score.

#5 Disputing an Incorrect Item will Remove it from Your Credit Report
Credit repair companies and other gurus might tell you they can get negative items off of your credit report. What they really mean is that they can get “inaccurate” items off your credit report, but even that isn’t necessarily the truth of the matter.
If you find an inaccurate item on your credit report and file a dispute, the creditor has to either prove they’re correct or fix the listed item. Or, if the item is aged out or incorrect, the credit agency or creditor can remove it. Most often, though, the creditor will simply correct rather than remove an item.

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How to Read Your Credit Report— 5 Top Things to Watch For and Get Fixed ASAP

Rachel — Thu, 01 Sep 2016 07:05:50 +0000

How to Read Your Credit Report— 5 Top Things to Watch For and Get Fixed ASAP Rachel Thu, 09/01/2016 - 03:05

Understanding your credit report is critical
Image Source - Flickr User Tony Webster

Most people are concerned with their credit score and focus strictly on the three-digit number, but there is far more to your credit profile than just the math that drives that number. It’s also important not to confuse your credit report with your credit score. The score is based on information on your report, so you have to start with your report to improve your credit score. Here’s what to look for and fix.

#1 Public Records

One of the most important sections of your credit report is the public records section. This is where you will see if you have been sued, if there are any judgments against you, or any liens. This is important information. Filing bankruptcy may help wipe out some of these issues.
It’s important to know what public records exist on you related to your debts so that you can approach them practically and ensure you don’t end up with liens on your home or other assets. If you do find public records, these should be addressed as soon as you can.

#2 Adverse Accounts

This section contains accounts that are in collection or severely delinquent. These are items that, if they are not addressed via debt settlement or bankruptcy, could lead to public records and a lien on your home or bank account. These are seriously overdue debts.
If the debts are unsecured debts like credit cards and medical bills, they can be wiped out in bankruptcy. This is also where debt collectors will add an item onto your credit report if they have been retained to collect a debt, meaning you can have two items on your report for one debt.

#3 Unknown Accounts

Below the adverse accounts section is a list of your other accounts that are in good standing. It’s good to check this to make sure that the balances due agree with your own record keeping and that your completed payments are on display, but this is also an area to check for fraud.
Look for accounts that are unknown to you—this can indicate that someone has opened an unauthorized account in your name due to identity theft. It will start in this section and then move into adverse accounts once the fraudster runs up debt and fails to pay.

#4 Unknown Inquiries

This section is where identity theft may first be detected. Someone trying to use your identity to get credit will trigger an inquiry when they apply for the credit. If you see any inquiries you don’t recognize, you should follow up on them.
Pre-approved offers and other soft credit checks should not trigger an inquiry. The only inquiries you should see is for credit you applied for—nothing else. You can also freeze your credit report if you see illegitimate inquiries to ensure no more credit accounts are opened.

#5 Inaccurate information

Other info on your credit report includes your name, social security number, address, employment information, other names used, and all your credit accounts. You should go through all of this information to look for inconsistency and inaccuracies.
If you find anything incorrect, you can request that it be fixed. However, you may have to provide documentation, such as proof of an address change, to substantiate what you’re trying to get changed. Once your report is clear and correct, you can lock it, then only unlock it when you seek new credit.

Always pull all three reports and check them regularly

One thing to know is that just pulling one of the three full credit bureau reports is not enough. Often, each report will contain different information. Request all three, go through them thoroughly, make all the corrections that need to be made, and then go into maintenance mode.
That means you should check all three reports at least twice a year, and you may want to sign up for a monitoring service so that anytime your credit reports change, you’ll be notified. This can alert you early on to an error or identity theft so you can protect your credit.

To find out more about improving your credit score after bankruptcy, contact Credit Score Keys. We help North Carolina bankruptcy filers rebuild their credit and get back on the road to financial success. Call 919-495-2365 to get started today.

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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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How Do You Know If You Have Good or Bad Credit?

Rachel — Thu, 04 Aug 2016 07:17:45 +0000

How Do You Know If You Have Good or Bad Credit? Rachel Thu, 08/04/2016 - 03:17

Do you have bad credit?
Image Source: Flickr User CafeCredit.com

If you don't keep close track of your credit score, the first sign that you have bad credit may come when you get turned down for a loan or new card. People don't always know what defines “bad credit” versus “good credit,” but – particularly after bankruptcy – it’s crucial to understand the difference so that you can focus on establishing a good score.

What Is Good Credit and What Is Bad Credit?

First, know that there is more nuance than simply just “good” or “bad” credit. Credit scores are broken into four broad categories: bad, fair, good and excellent. However, the parameters aren’t hard and fast. Each lender determines what criteria they find acceptable in order to offer credit. Also, if you have no credit, that’s pretty much the same as bad credit as far as most lenders are concerned.

The parameters fall roughly as follows:

Bad credit: 629 and below
Fair credit: Between 630 and 689
Good credit: Between 690 and 719
Excellent credit: Higher than 720

Good Credit Is Subjective and Interpreted by the Creditor

What FICO score is good enough to qualify for credit is up to the creditor – and many will accept credit that’s not in the “good” range. It depends on what level of risk the creditor considers worthwhile, among other factors.

For instance, if they are offering credit with a high interest rate, the lender or creditor will often accept people with low credit scores because those high interest rates provide a built-in, higher profit margin. Thus, creditors can be more liberal about who they offer credit to.

Some consumers mistakenly interpret the phrases “subprime loan” and “subprime credit card” to mean that they're being offered a low interest rate. However, subprime actually means that the consumer applying for credit has a “subprime” score, which means “less than good.”

Be aware that just because you were accepted for a loan or credit card, it doesn’t necessarily mean that you have “good” credit – it just means that based on your profile, you fall within the acceptable risk category for that specific creditor. Subprime credit is very costly for consumers.

How Can You Get “Good” Credit?

Having a good credit (or excellent, preferably) is the best route to more affordable financing, lower interest credit, and paying less for services that are credit-dependent, such as auto insurance and some utilities. Here are some simple steps to take:

#1 Find out what your score is. Pull all three reports from all three reporting agencies because the scores will differ slightly.

#2 Clean up your credit reports by having erroneous accounts and incorrect information removed.

#3 Pay your bills on time – always.

#4 Check out this article on how to improve your score by 100 points.

Improving your credit score is a process of slow and consistent behaviors that demonstrate you can use credit responsibly and are trustworthy. There is no overnight fix for bad credit, and anyone who tells you that there is isn’t being honest.

It’s important to get and maintain good credit so that you won’t overpay for services, are able to purchase a home and car at a reasonable interest rate when you need to, and so you won’t be refused job opportunities because of your credit score.

To find out more about improving your credit rating after bankruptcy, contact Credit Score Keys. Call us at 919-495-2365 to learn more about getting your FICO score back on track. Bankruptcy isn’t an end; it’s the beginning to a brighter financial future.

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What Is a Motion for Relief and What Does It Mean When a Creditor Files One Against You?

master — Tue, 23 Dec 2014 18:55:52 +0000

What Is a Motion for Relief and What Does It Mean When a Creditor Files One Against You? master Tue, 12/23/2014 - 13:55

When you're filing for bankruptcy, you're focused on yourself and getting debt-free (and you should be). But there are other parties involved in the process – those you owe. Most of the time, creditors accept a bankruptcy filing and don't try and fight it. But sometimes, particularly with a mortgage or auto loan, they may push back and ask for a motion for relief. Today we'll explain in plain language what this is, what it means and when it's a big deal and when it's nothing much to worry about.

What is a Motion for Relief?
This is technically a “motion for relief from the automatic stay.” As soon as your bankruptcy petition is filed, creditors are subject to an automatic stay – stay meaning stop. This means that they have to stop debt collection efforts including calling you, writing you and trying to foreclose on your home or repossess your car. Sometimes, a creditor will push back and ask the bankruptcy court to let them carry on with their collection efforts. To do this, they must file a Motion for Relief. This most commonly happens with a mortgage or car loan.

How does a Motion for Relief work?
The creditor, usually a mortgage lender like a bank or a finance company for a car, essentially asks the judge to drop the automatic stay for just them to allow them to foreclose or repossess. In the motion, they will include how much you owe, the terms of the financing arrangement and how far behind you are on your payments and some reasons why the bankruptcy court should allow them to carry on rather than waiting out the automatic stay. A motion for relief can be filed in either common type of consumer bankruptcy – a Chapter 7 or a Chapter 13.

When should I be worried about a Motion for Relief?
If, for example, you've filed a Chapter 7 to get total debt relief and have decided to surrender your home as part of the process because you're behind on payments and don't have a way to get caught up, this isn't a worry. In this example, even if the judge said okay, lenders are pretty slow to foreclose (for the most part) and you should already be saving up to move because you planned to surrender the home.

How long does it take for a Motion for Relief to go into effect?
For those few creditors who do choose to file this motion, they usually won't rush right out and file. What's more common is that they will file within a month or two after receiving notice of your bankruptcy petition. From there, a hearing is scheduled where your bankruptcy attorney will ask the judge not to grant the motion and offer some reasons as to why they should not. Some courts require the creditors to physically show up, which may be a hassle for them if they are out of state.

What are some way to fight back against a Motion for Relief?
If you need some extra time in your home or in your car and you know your lender has a reputation to repossess or foreclose rapidly after obtaining approval on the motion for relief, your bankruptcy attorney can push back on the motion. One way to get a motion dismissed is to find errors in the filing – this can happen if clerks, rather than lawyers prepared the motion. Fighting back on the basis of improper service is also possible if the papers weren't delivered according to specific time lines. If there is a lack of supporting documents with the motion, this can also be a reason to have the motion dismissed.

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Does the Automatic Stay Protect Your Co-Debtor, Co-Signer or Spouse from Collections

master — Sat, 20 Dec 2014 18:45:45 +0000

Does the Automatic Stay Protect Your Co-Debtor, Co-Signer or Spouse from Collections master Sat, 12/20/2014 - 13:45

No matter which chapter of bankruptcy you choose, Chapter 7 or Chapter 13, as soon as you file, an automatic stay kicks in that stops debt collection efforts. The automatic stay is designed to keep creditors off your back while the Trustee evaluates your petition and verifies what you can afford to pay. With a Chapter 7, the stay will last until you receive your discharge. After that, you should be in good shape because your eligible debts will be evacuated and any surviving debts will be easier to deal with. With a Chapter 13, the stay will last the length of your repayment plan so long as you keep up with your payments. But in either case, how does this affect your co-debtors, co-signers or spouse?

When the automatic stay protects co-debtors
If you and your spouse signed on for debt together, but you don't file a joint bankruptcy petition, they will be treated as any other co-signer or co-debtor. A co-signer or a co-debtor is simply someone that shares a debt with you, whether it's your significant other you're married to or not, a parent, friend or someone else. You may have taken a loan and they co-signed to help you get approved or get a better rate or you may have signed for someone else to get a debt. Either way, you are co-debtors.
If your co-debtor is your spouse and you file a joint bankruptcy, the automatic stay will cover you both in either a Chapter 7 or a Chapter 13. If you file Chapter 13, the automatic stay will protect your co-debtors including a spouse that didn't jointly file bankruptcy with you. This applies for all consumer debt (i.e. non-business debts). The automatic stay will continue throughout your repayment plan but if there are any remaining balances that are discharged, your co-debtor may be pursued for the rest.

When the automatic stay does not protect your co-debtors
In a Chapter 7, your co-debtors are not protected at all. For instance, if you have a co-signed credit card, the card issuer will very likely turn around and pursue your co-signer once they learn you are off limits. In a Chapter 13, as mentioned above, any co-signed debts that you receive a discharge for and that have remaining balances, will likely result in your co-signer being pursued. While this may be upsetting, this should not keep you from filing bankruptcy if it is your best option to get the debt relief you need.

When bankruptcy is still the best option, even if you have co-debtors
If you have a significant amount of unsecured debt you cannot service and are in over your head, bankruptcy may be the best approach to get you a financial fresh start. Even though this is best for you, knowing that your co-debtors can still be pursued for the debt may be a stumbling block for you. You may feel it is unfair to leave them holding the bag, particularly if they signed on for a debt for you, rather than vice-versa.
But consider this. While it is contrary to bankruptcy law to make personal payments prior to filing, it's not contrary to do so afterward. What this means is that if you and a co-debtor are both on a credit card that you owe $2,000 on, if you paid them $700 prior to filing Chapter 7, that's a no-no. But, if you file Chapter 7 and get a discharge that frees you up financially, you may then be able to afford to make payments to your co-debtor to cover the payments they are making on your debt.
However, what you don't want to do is to resume paying directly to the creditor. In the credit card scenario, if you and a co-debtor have a shared credit card debt, and you pay directly to the card issuer after bankruptcy, you can actually reinstate your debt that was discharged. Instead, let the co-debtor make the payments and then you reimburse them for what they paid.
This is the best case scenario for a Chapter 7 – where you get the fresh start you need and alleviate any feelings of guilt over your co-debtor being stuck with debt. With a Chapter 13, let the repayment plan play out, get your discharge, then help your co-debtor deal with any residual debt.

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