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Spot Credit Report Errors After Your Bankruptcy & Fix Them

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credit reportYour debts have been discharged in Bankruptcy. Congratulations!

But if those debts still appear on your credit report, you haven’t gotten all the debt relief you are entitled to.

Your credit report is the public face of your finances. It’s the thing that lenders, landlords, and life insurance companies look at to figure out whether or not you’re a customer who gets the best prices on financial products – or not.

How discharged debts appear on your credit report

If your debts are legally gone, how do they remain on your credit report?  Your former creditor just doesn’t bother to update the report.

Some of them, and I kid you not, some of them will be so out of it (despite all the notices from the Bankruptcy Court – and maybe even you) that they will keep automatically pulling your credit report every month (damaging your score) just like you still had an open account with them!

Everyone thinks it won’t happen to them, but it does.  It happens to thousands and thousands of people every year – many of whom become my clients.

Your credit report after bankruptcy

So, that’s the BAD news.

The GOOD news is that it’s relatively easy to figure out what your credit report should look like after your bankruptcy discharge.

First:   You’ve got to know that there’s a significant risk of this happening and care enough to GET YOUR CREDIT REPORTS from all three bureaus .

You can use www.annualcreditreport.com or call each of them and buy one report – don’t pay for the score – for about $9 and have it mailed to your house.

Do this no less than 90 days from your date of discharge, but no more than 180 days from the date of discharge. (Free guidance is available on how to do this.)

Six biggest post-bankruptcy errors

The foundation of credit reporting law is that  you’re entitled to an accurate credit report AND if you have to sue to get yours fixed, the law makes the credit reporting agency pay your attorney’s fees.

Each of these problems fails the legal standard.

1. Discharged Debts not Labeled as Discharged in Bankruptcy and not listing a Balance Due of $0.00.

Every debt that was discharged in bankruptcy, which is going to be just about everything except for debts you “reaffirmed” and student loans, needs to be noted in your credit report as “Discharged in Bankruptcy” (or words to that effect), have a Balance Due of $0.

When/if this doesn’t happen – you’re going to be surprised. You’re going to think it’s you – that maybe you misunderstood the credit report or how bankruptcy worked. You didn’t, and you don’t – creditors get this wrong all the time.

2. Repeated “Hard Pull” Credit Inquiries by Your Former Creditor.

Once your debt is discharged in bankruptcy, your debtor-creditor relationship with Big Bad Bank and whomever else is over!

Done.

They’ve got no legal right anymore to be pulling your credit every month and bringing down your score. But they do it!

Why?

They just forget to stop. They forget to turn off the credit score pulling robot. Find this error by checking your “Hard Inquiries” and looking for your ex-creditors pulling your credit score after your bankruptcy discharge.

3. Charge-offs Reported After the Filing of Bankruptcy or After the Bankruptcy Discharge

When an account is listed as “Charged Off” on your credit report, that’s negative.

There are a number of circumstances when a creditor can charge off an account but they MAY NOT do so after you’ve filed for Bankruptcy or after you’ve received your Bankruptcy Discharge.

Why do I include this here? Because it happens, and it’s illegal.

4. Formerly Secured Creditors Still Reporting that You Owe Them Money

This one is particularly common following Chapter 13 bankruptcy. Suppose  you had a car that you voluntarily surrendered to the lender. It’s worth $20K and you owed $50K. That $30K is now unsecured debt and it gets paid (or not) in accordance with the plan. When your Chapter 13 is done and discharged, you do NOT owe that money. BUT, those creditors will often report to the credit bureaus that you do.

Not legal.

This same thing also happens with Second (and Third) Mortgage and HELOC  lenders – they get “lien stripped” in a Chapter 13 plan and no longer have any right to the property that used to secure their loan. Their debt becomes unsecured and gets satisfied (usually) in accordance with the plan.

At the end they’re owed $0 and must report that to the credit bureaus after the Chapter 13 discharge. Many of them, for whatever reason, have a hard time doing this right – and it massively affects the fresh start you are supposed to get from bankruptcy!

5. Spouse is Reported as Having Filed for Bankruptcy When They Did Not

If one spouse files for bankruptcy and the other doesn’t, it’s OK that their joint debts are listed as “included in Bankruptcy” on the non-filing spouse’s credit report.

What is NOT OK, is reporting that the non-filing spouse actually filed for Bankruptcy. This will turn up in the “Public Records” section of the non-filing spouse and/or in the non-filing spouse’s separate accounts being listed as “included in bankruptcy.”

6. Reaffirmed Accounts Misreported

Reaffirmation happens when you could discharge an account in  bankruptcy, but for some reason, you choose not to.

Those accounts should be listed as “Reaffirmed” and NOT as discharged in bankruptcy.

Here’s what else: for accounts that are partially reaffirmed, there must be a new account opened with a new account number and that reaffirmed portion must be reported as reaffirmed on your credit report – and the non-reaffirmed portion of the account must be reported as discharged in bankruptcy with the $0.00 balance due.

Get your credit report fixed

So, what to do next?

You’ve gotten your reports and check them for these errors (good on you!) and you’ve found one or more of them (kind of a bummer). No worries, get free help drafting written disputes to your creditors and the bureaus and set your problem up to get fixed as soon as possible!

If it takes a lawsuit to fix it, remember, the law requires that the Credit Bureaus pay the costs and attorney’s fees for that (which I why I personally take these cases on contingency).

You’ve done the work of going through bankruptcy – make sure you get the Fresh Start that you deserve!

Life And Death of Debt In California

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statute of limitations on debt

CPR has its place when human life is involved. Human life is precious.

But if what’s dying is the legal right to collect a debt, not so fast.

You don’t want to breathe new life into an old debt that is legally dead.

Yet you can do that, unintentionally reviving a debt that is legally dead or giving it new life when it’s approaching its life’s end.

California statute of limitations can be tricky.  I  intended to explain in this post the law and how to keep from unwittingly extending your legal exposure to a debt.

I’ve concluded that the law is simply too complicated and evolving to provide a nuanced, reliable guide to avoiding screw ups.

So, I’m adopting the Nancy Reagan approach to the statute of limitations.

Just Say No! 

NO, I don’t owe it.

NO, I won’t pay it.

While it may stretch the truth as to whether you owe it, it’s simple and safe.  It keeps you from adding to your exposure to old debts.

Admit nothing.

Avoid extending the statute of limitations

The statute of limitations allows enforcement of a legal right through the courts only if brought before the running of the statute.

Broad brush, you can extend your legal exposure to an old debt in two ways:

  • Make a payment on the debt
  • Admit that you owe the debt

Important to note that either of these ways of extending the life of a debt are acts that you, the person who owes the money, take.  The debt collector can’t extend the statute unilaterally.  Only by getting you to do something against your interests is the life of the debt prolonged.

Payment breathes new life

Making a payment on the debt is putting your money where your mouth is:  you wouldn’t pay anything if you thought you didn’t owe money.

So payment is seen as proof that you owe the money.

Payment starts the statute of limitations clock running again, from the beginning.

That’s where the debt collector’s request for a “good faith” payment on a debt you can’t pay off at this time is so insidious.  The debt collector cares far less about the amount of that “good faith” payment than he does about the fact that you’ve just extended your legal exposure to the debt for an entirely new period.  What that period is we’ll discuss below.

Admitting the debt is fatal

An admission that you owe the debt, even without payment, can reset the SOL clock.

California law provides that only an admission of the debt in writing can extend the statute:

No acknowledgment or promise is sufficient evidence of a new or continuing contract, by which to take the case out of the operation of this title, unless the same is contained in some writing, signed by the party to be charged thereby, provided that any payment on account of principal or interest due on a promissory note made by the party to be charged shall be deemed a sufficient acknowledgment or promise of a continuing contract to stop, from time to time as any such payment is made, the running of the time within which an action may be commenced upon the principal sum or upon any installment of principal or interest due on such note, and to start the running of a new period of time, but no such payment of itself shall revive a cause of action once barred.  Code of Civil Procedure 360.

Yet there are precious few cases on the subject.

And while traditionally, the statute of limitations that applies to any collection suit was the law of the state where the defendant lives, recent cases make that less certain.  Topping off the uncertainty, the 9th Circuit Court of Appeals recently ruled that in bankruptcy, the statute of limitations of the state whose law applied to the contract controlled, not the shorter statute where the debtor lived.  Sterba

All of which makes saying nothing, or saying no, the safest course of action if you have an old debt that you can’t pay.

Why have a statute of limitations

Pubic policy says we want legal disputes resolved sooner rather than later.  If a lawsuit is involved,  we want the evidence  available and memories fresh.

It’s the legal version of  SNOOZE, YOU LOSE.

A debt collector or a debt buyer has the same statute of limitation as the original creditor.

When does the limitations clock start running

The SOL clock starts running on the limitations period upon the last activity on the debt.  That activity could be a payment on a debt;  it could be a charge on an open account.

If there are neither charges nor payments on a contract debt after that, the period runs for four years in California. 

Once the limitations period has run, the person who owes the debt has a slam-bang winner of a defense if the creditor files a lawsuit to collect. 

Cheat sheet on statute of limitations from the California Courts

More from the FTC on time barred debts.

More here on debt collection lawsuits

What to do when you’ve been sued

 

 

Why Bankruptcy Cases Go Down The Drain

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I  watched dozens of Chapter 13 cases get dismissed in a single afternoon in court recently.

Dismissed.

Tossed out.

Ended.

The usual reason was that the debtor had not taken seriously the requirement that all their tax returns be filed within 45 days of the commencement of the case.

Regardless of the debtor’s need for relief from their debts, and despite the additional losses incurred by dismissal, these cases vanished from the court’s docket.

Perhaps I shouldn’t be surprised that folks who didn’t take filing tax returns seriously before they were in bankruptcy continue to blow it off when bankruptcy is filed.

But under the “reformed” bankruptcy code,  filing returns is mandatory and dismissal automatic.

This rule has been with us for a decade now.  Why is it still reeking havoc?

Debtors relax

Too often, once the bankruptcy case is filed, and the automatic stay is in place, debtors relax.

Getting the information together for preparation of the schedules is taxing and tedious.

When the phone stops ringing with collection calls, and you start sleeping at night, it’s tempting to think your work in bankruptcy is done.

But it isn’t so.

A Chapter 13 debtor, who is going to have a relationship with the Chapter 13 trustee and the bankruptcy judge for three to five years, has to prove that they are up to date on their obligation to file taxes.

And that makes sense, since the trustee can’t evaluate whether the Chapter 13 plan provides enough money to pay the priority taxes unless the returns have been filed.

Remember that returns can be amended later, if you don’t get them 100% correct and complete on the initial filing.

But fail to file and your Chapter 13 is toast.

Bankruptcy is a benefit and to get the benefit, you need to play by the rules on the timeline created by the Bankruptcy Code.

More

The brutal difference between dismissal and discharge

What if you can’t make your Chapter 13 payments

Getting a Chapter 13 discharge even if you didn’t make all the payments

Image courtesy of Flickr and Stephen Pierzchala

How One Family Settled Huge Debt For Pennies

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chapter 13 success
When he started the Chapter 13 trek, he owed $370,000 in personal loans and credit cards.

As he completes his plan, he will have settled that debt for three cents on the dollar.

No tax is due on the forgiven debt and no listed creditor can legally come back to try to collect the difference.

And that’s why I love Chapter 13 bankruptcy.

Chapter 13 in the real world

I’ve talked here lots about how Chapter 13 is structured, how plan payments are calculated, and all the nifty things Chapter 13 can do for those with bills they can’t pay.  It’s sometimes dry and dense, but you see how it works.

But here’s how it worked for one real family now completing their plan.

They confirmed a Chapter 13 that resolved their debt for 3% of what they owed when they filed.

They got five years to pay that 3%, interest free.

The payments through their plan cured any pre bankruptcy arrears on their house, in full and without interest or penalty.

They were protected from the taxing authorities while they cured delinquent property taxes.

And in our insane real estate market in the Bay Area, their home appreciated about 50%.  Appreciation that is theirs, rather than their creditors’.

Plan payment driven by asset value

Not all unsecured creditors are as lucky as the creditors in this case, who got something on their claims, even if it was only three cents.

Because the couple had some stock and other assets that weren’t exempt, their plan had to guarantee unsecured creditors a share of the $11,500 value of those non exempt assets.

Based on their income and the infamous means test, general unsecured creditors wouldn’t have gotten anything.

So, the take-away is that just what you have to pay in Chapter 13 is decided by the interaction of the kind of debts you have; the income that the law says is available to pay those debts; and the value of your non exempt assets.

But seen from the top of this mountain, Chapter 13 is powerful.  And the view of life after bankruptcy is stunning.

More

Life after bankruptcy

How Chapter 13 plan payments are calculated

Little known alternative to bankruptcy

 

Does Bankruptcy Discharge A Judgment In California?

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Nothing gets someone into a bankruptcy lawyer’s office quicker than the prospect of losing a lawsuit and having a judgment entered against them.

Callers are frantic to see if they can file bankruptcy before judgment is entered.

They worry that once a judgment is entered, their options in bankruptcy vanish.

Not so.

The debt underlying a California judgment remains just as dischargeable as it was before the case was filed.

And,  a judgment in California does not automatically become a lien on the defendant’s property.

It takes another step in California for a money judgment to become a lien.  And as long as there is no lien, the debt is unsecured and  potentially dischargeable in bankruptcy.

Discharge turns on kind of debt

Contrary to what some dishonest debt collectors will tell you, judgments are just as dischargeable in bankruptcy as the underlying debt is.

Whether an unsecured debt can be discharged in bankruptcy looks at  the nature of the debt, not whether a court has ruled on the merits of the claim.

So,

  • Child support is non dischargeable, whether or not there is a judgment.
  • Debts incurred by fraud are non dischargeable in bankruptcy, if the creditor can prove fraud to bankruptcy standards.
  • Credit card debts honestly incurred are dischargeable, judgment or no.

Liens change everything

What does change the dynamic is an abstract of judgment or a notice of judgment lien.

These documents do create a lien on the judgment debtor’s assets.

Recording an abstract of judgment creates a lien on real property in the county in which it is filed.  A notice of judgment filed with the California Secretary of State creates a judgment lien on personal property located in the state.

If the lien cannot be avoided in bankruptcy, the judgment creditor has obtained an advantage.

What my friend Jay Fleischman’s post about civil judgments in New York and their bankruptcy implications points out is the way state law impacts the operation of federal bankruptcy law.

The rights that each party in a bankruptcy case brings to the bankruptcy case originate in state law.

It also demonstrates why lawyers are licensed in each state and why my California law license does not entitle me to practice bankruptcy law in New York.

And why bankruptcy is not a do-it-yourself project.

More

When you’re served with a lawsuit

Everything you need to know about judgments

Wage garnishment survival guide

Who are the really scary creditors

Image in the public domain, courtesy of Wikimedia.

10 Tips To Help You Keep Your House

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keeping your home

When financial trouble rears its head, keeping the house becomes a number one priority.

Whether the pinch is caused by loss of income, a loan that resets, or business slow down, you can find making the mortgage payments a challenge.  Not to mention sorting out escrow screwups and changes of servicers.

So, we’re rounding up some of our best posts on real estate, mortgage accounting, foreclosure prevention, and houses in bankruptcy here on one page.

mortgage debtUnderstanding what you owe on your mortgage  

Five basics that explain why the payoff of your home loan isn’t necessarily the principal balance and why the lender says you’re due for last month when you sent a full payment.

 

save houseHow Chapter 13 works to save your house

Once you file bankruptcy to stop the foreclosure, what happens next in Chapter 13 and how does it help you keep your house.

 

Your house needs an annual mortgage check up with RESPA

How to use your rights under the Dodd Frank Act to get straight forward answers about your home loan file and just what the lender claims you owe.

 

reverse mortgageThe truth about reverse mortgages  

While tapping  accumulated equity in your home seems logical, a reverse mortgage is full of catches that may trap you, your spouse, or your heirs.  Things to watch out for.

 

lien stripWiping out liens in bankruptcy 

Underwater mortgage liens can be stripped off of your home in a Chapter 13 bankruptcy.  Complete your plan and the lien with no value is forever void.

Borrower mistreatment in loan modifications: courts are fed up   

Federal District Judge finds that banks have a common law duty of care when they consider a loan modification.  Harm to the borrower is foreseeable if the servicer fails to route the application properly.

Six things you didn’t know about the California homestead 

More powerful than you thought, with limitations that are poorly known, a California homestead is the superhero of exemptions.

homeowners insuranceWhy your lender’s insurance is no good for you 

When your lender obtains insurance on your home, you’re in a world of trouble.  The bank is not looking out for you, neither in cost or coverage.

loan modification battlesTrouble persists after the loan modification  

The struggle isn’t over when you’re told you have a loan modification.  Dig into the tricks employed by loan servicers to keep homeowners from real relief and how to fight back.

 

CALIFORNIA foreclosureYour rights in a California foreclosure 

Foreclosure is a process, not a place.  Until there is an actual foreclosure sale, your rights to the property are unchanged.  Don’t be exploited.

Take The Long View : Money For A Lifetime

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financial literacy building blocksThe financially literate manage their money for the long haul.

In a world of biweekly paychecks and monthly billing cycles, it’s easy to let your perspective shrink to 30 day increments.

  • Mortgages are paid monthly
  • Utilities bill every 30 days
  • Credit cards come due 12 times a year

The monthly bank statement tells you how you did that month.

But that view is incredibly short-sighted.

Your working life isn’t everything

Most of us don’t work for our entire lifetimes. Your financially productive years  may be only half of your lifespan.

There’s growing up and getting an education;  there’s a working life; then there’s old age.

And the money we manage in that middle slice of life usually determines how well we live at the end of our lives.

If you expect to inherit a fortune from short-lived relatives, you can stop reading here.

For the rest of us, let’s keep thinking. [Read more…]

How to Screw Up Your Bankruptcy

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If an asset isn’t titled to you,  it does not have to be disclosed in a bankruptcy filing.

I hear it and see it in action again and again.

If it isn’t titled to you, it will be “safe” from the bankruptcy trustee and from creditors.

And yet it is wrong.

Wrong, wrong, wrong.

Still, people transfer titles to cars and cash and quitclaim their homes to friends before bankruptcy, thinking that’s smart.

No.  It’s both dumb and dangerous.

Not only does putting your assets in the names of friends and family expose them to a lawsuit to recover the property, in extreme situations it puts your bankruptcy discharge at risk.

Actions taken to “hinder, delay or defraud” creditors are grounds for denial of discharge under 11 U.S.C. 727.

What could delay your creditors more than shedding assets without getting anything in return?

Transferring asset unlawful since Elizabeth I

Queen_Elizabeth_I_of_England_Wellcome_V0048338 (1)_optFor well more than four hundred years, the law has contained prohibitions on fraudulent transfers.

A transfer of an asset by one who has debts constitutes a fraud on creditors if

1) the transfer is for less that fair consideration; or

2) was made for the purpose of putting the asset beyond the reach of creditors; or

3) leaves the person transferring the asset with less capital than reasonably necessary to conduct their business.

So, a transfer is actionable if it’s a gift; you intended to hide the asset; or the transfer left you broke.

Consequences of fraudulent transfer

The usual remedy against the person who gets the asset is  an order requiring the return of the asset or a money judgment in the amount of its value.

The bankruptcy code has a statute empowering the recapture of transfers made within two years of filing.

In addition, the bankruptcy trustee has the rights of the debtor’s creditors under state law to recovery any property that the debtor wrongfully transferred.  In California, creditors have four years to recover fraudulent transfers.

Putting your assets in someone else’s name

So, a really quick and effective way to screw up your bankruptcy is to put your assets in the name of your mother, your kids, or your buddy, and conceal the fact from your attorney.

Sign the statement of affairs under penalty of perjury, hiding the transfer, and you are a long way toward making a real muck of things.

Yet people again and again ask “what if I put it in someone else’s name?”.

As long as they ask me, I get a chance to say “Don’t do it”.

And they have a chance to get a discharge.

More

What your bankruptcy lawyer can’t tell you

Bankruptcy’s 90 day rule

Do it yourself bankruptcy

 

Queen E. The First courtesy of Wellcome and Wikimedia.

Life After Bankruptcy: What’s It Really Like?

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life after bankruptcyWhat’s life really like after bankruptcy?

Everyone suffering through financial difficulties wants to know whether filing bankruptcy just trades one form of pain for another.

Will you be shut out of the American dream forever?

Here’s a collection of our best stories and advice on the world of your fresh start.

Your credit heals

Damaged credit improves over time, just like wounds heal. A credit report is not like a wine glass that once it’s broken, it’s gone forever.

 

after bankruptcy8 Tasks after bankruptcy

You’ve still got work to do after your bankruptcy to enjoy your fresh start.  Figure out where you are, money wise, and apply the lessons of the debtor education class you took to get the discharge.

 

after bankruptcyRenter to homeowner
Even with generous California exemptions, this aging client had nothing coming out of bankruptcy because she had nothing going in. Three years later, she’s a homeowner.

 

debts after bankruptcyDealing with debts that survive bankruptcy

A few unsecured debts can’t be discharged in bankruptcy; it’s a short list.  Some liens are your assets remain a charge on the collateral for that lien, but not on your new acquisitions.

 

car loan after bankruptcyGetting new wheels
How do you hold on to your ride, or replace your aging car after bankruptcy? Understand the impact of a shedding debts through bankruptcy.

 

bankruptcy discharge has teethDefending your discharge

The bankruptcy discharge is a federal court order;  it has teeth.  If creditors ignore your right to be free of collection efforts, you may have to bite back.

 

life after bankruptcyBankruptcy can be a life-changing event, for the positive

Life after bankruptcy can be what you make it.  You get a chance to make some new choices and to strip some sources of stress from your life.  How will you color it in?

More

Is it better to just keep making minimum payments?

Secret alternative to bankruptcy

How debt makes you dumb

Asset Protection For Free

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Savings protection, close up of female hands covering stack of gEnjoy your money without worry about your creditors taking it from you.

That describes asset protection.

A substantial industry run by expensive professionals will scatter your money between interlocking partnerships and off-shore corporations to keep it away from those who might sue you.

And, of course, a bunch of your money lands in their pockets. 

When asset protection doesn’t work

All to keep your assets safe from unexpected, catastrophic lawsuits.

For most of us, we don’t need to go there:  Uncle Sam lays out the first step in asset protection.

Retirement plans safe from creditors

Federal law puts pensions, 401(k) plans, and employee benefit plans beyond the reach of even a creditor with a judgment.

The power of a legal judgment

Any plan qualified under ERISA has an anti alienation clause that forbids transfer of plan benefits, except to the beneficiary.

It takes no special set up, no high-priced lawyers,  no costly maintenance, just regular savings in an appropriate plan to put your retirement assets beyond the reach of a financial catastrophe.

If you file bankruptcy, ERISA qualified accounts don’t even come into the bankruptcy estate.

It takes a plan

To get the protection of law for retirement savings, they have to be in a plan.

It doesn’t work to merely label an asset or an account as your “retirement plan”.  It needs to be part of a federally recognized plan for tax advantaged retirement savings.

I can’t tell you how many of my bankruptcy clients tell me that their small business or their expensive home  is their retirement plan.

That’s not a plan, it’s a pipe dream.

And any non exempt equity they have in either of those assets is available for creditors. Worse, a creditor with a judgment can force the sale of non exempt assets, and leave you with the tax bill for capital gains, etc.

Employer match swells account

Employers seldom just hand you cash to save for retirement, but they do frequently match your contributions to a 401(k) plan.  That match represents an immediate 50-100% return on your money.

Again, all tucked away where no taxes are due on its growth and beyond the reach of creditors.

Until you’ve maxed out your ERISA qualified retirement savings, don’t fret about finding other forms of asset protection.

Uncle Sam, in this regard anyway, has your back.

More

The real threat to your retirement savings

The only three times bankruptcy makes sense

Your home is a lousy retirement “plan”

1674 N. Shoreline Blvd.
Suite 140
Mountain View, CA 94043
Phone: (650) 694-4700

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