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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!

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

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…]

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”

We Live In An Economic House Of Cards

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I’ve long said to bankruptcy clients that bankruptcy can’t fix an income problem, it can just ameliorate an outgo problem.

In the last round of frantic bankruptcy filings a decade ago, one symptom seemed to be that too many families in the Silicon Valley  couldn’t really afford to live a middle class life here.

They filled the gap between economic realities and their expectations with credit cards until the house of cards came tumbling down.  I could provide the tourniquet that staunched the credit card outflow.

But it seems the problem of struggling families isn’t just an outgo problem: it’s income based and it’s everywhere, not just California.

A United Way study,  released last week, shows 43% of American households can’t afford a bare bones budget.  That’s 51 million households that can’t afford the basics of food, rent, child care, transportation, health care and a cell phone.

Even with reportedly low unemployment, the income generated falls short for a huge swath of our populace.  The people the United Way set out to study were those they dubbed ALICE:  Asset Limited, Income Constrained, Employed.

What they found calls out for national attention and a reordering that keeps all of our families self sufficient.

My skill-set in bankruptcy is no match for people on the edge of destitution.

 

 

Debt Settlement Is A Dud

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Debt Settlement No Alternative to BankruptcyDebt settlement companies rarely deliver what they promise.

Yet their pitch for “settling your debts” touches a nerve with those who struggle with debt.

And the pitch shouts that debt settlement is superior to bankruptcy.

It just ain’t so.

All too often, the client of the debt settlement company is exposed to continuing collection calls, lawsuits, plumeting credit scores, and garnishments while the company is attempting to settle the debt.

And in the end, many dollars later,  debt settlement doesn’t deliver either a debt free life nor an undamaged credit report.

The appeal of debt settlement

What is it that makes a chancy, drawn out, expensive relationship with one of these debt settlement companies seem attractive to the financially overwhelmed?

I’d suggest:

  • Enrollment  appears to offload the problem on someone working for you
  • High profile media types like Suze Orman and Dave Ramsey badmouth bankruptcy
  • Promoters suggest that there is a “secret” to settling your debt for pennies on the dollar
  • Paying some part of debt is morally satisfying

As long as the public buys the idea that bankruptcy is akin to leprosy, those who, for a fee, offer the secret, non bankruptcy solution get rich.

Settlement company gets theirs first

The truth is that most debt settlement companies get their money upfront.  The first several months of payments don’t go to creditors or to building a settlement kitty, they go to the debt settlement company.

When the consumer figures out that paying the debt settlement people for months on end has not resolved any of the life-sapping incidents that come with being in debt: collection calls, law suits, levies, the debt settlement folks can move on to the next troubled consumer, with money in their pocket.

Bankruptcy works

By contrast, bankruptcy is available for a flat filing fee of around $300 to the court, plus attorneys fees.

It costs the same whether you have modest debt or huge debt.

It is instantly effective to stop collections.

Creditors can’t opt out, like they can with debt settlement.  All creditors are bound by the automatic stay and ultimately by the discharge.

And, the rules are enforced by a judge, with powers of sanctions and even incarceration.

What a bankruptcy judge does

The cherry on the top is that bankruptcy doesn’t generate cancellation of debt income issues.  There are no negative tax consequences from discharging  debt in bankruptcy.

The long-term tax advantage for homeowners in bankruptcy over debt settlement

Bankruptcy bashes debt, for certain and for all time.

More

Pay off credit cards with no interest

Make no changes til you see a bankruptcy lawyer

What to ask a bankruptcy lawyer before signing up

Image courtesy of derekbruff.

The Bankruptcy Problem Your Lawyer Can’t Fix

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ThreatThe problem even the best bankruptcy lawyer can’t fix is the one you hide.

Sometimes  it’s a problem you don’t want to face yourself, or a debt your spouse doesn’t know about.

Maybe it’s a claim you hope to bring after the bankruptcy.

You’re tempted just to say nothing to your bankruptcy lawyer.  Who will know?

Think again.

When the truth is threatening

You’ve probably heard lots of the myths about bankruptcy floating around.

Then there are the stories from people who knew someone whose friend’s cousin  filed bankruptcy some time back.

He didn’t tell everything and it worked out.

Maybe or maybe not.

People visiting a bankruptcy lawyer for the first time often are tempted to conceal debts, property, or transactions from their lawyer in the belief that if the lawyer had the facts, they would be barred from bankruptcy relief. That is seldom so.

Your lawyer can’t protect you from problems created by secrets you keep. With all the facts, your lawyer can provide meaningful advice that maximizes the relief available in bankruptcy.

Hide your secret from your bankruptcy lawyer and you may have a problem far bigger than the one you’re trying to hide.

Full disclosure is the price of relief

Bankruptcy is grounded in full disclosure to the court and creditors.  In exchange for transparency about your finances, you get a discharge of your dischargeable debts.

More importantly, your bankruptcy papers are signed under penalty of perjury.  Get caught in a deliberate lie and you may lose the opportunity for a discharge of all of your current debts.  One of the grounds for denial of discharge is “false oath”.

Perjury is a federal crime.  You could find yourself the guest of Uncle Sam for up to five years.

The time-worn saying in bankruptcy is that it’s the X’s that will get you:  the ex-spouse, the ex-partner, or the ex-friend.

Those folks may have a motive to call you out in court.

The trustee has a right to examine your tax returns, your bank statements, and your check register.

Secrets are hard to keep.

Get your money’s worth from your lawyer

Usually the things people hope to keep from me are penny-ante things.  When it is disclosed, I often find that what the client was worrying about  isn’t really a worry at all.

When the secret does present a complication, we can look for a work around:

  • undoing the transfer,
  • filing Chapter 13,
  • waiting to file til the secret is no longer a problem.

But I can’t fix things I don’t know about.

Start by making full disclosure to your bankruptcy lawyer. Your lawyer is on your side.

Image courtesy of Sandilya Theuerkauf and Wikimedia.

When Bankruptcy Lawyers Get The Basics Wrong

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The Lawyers Have Bankruptcy Wrong?I cringe when a client says that they’ve researched bankruptcy on the internet before making an appointment with me.

For every sound, balanced, nuanced article on consumers and their debts, there are bunches of sloppy, inaccurate sites, often trying to make bankruptcy so frightening that you’ll buy whatever they’re selling.

But when a group of bankruptcy lawyers, trying, I’d assume, to provide useful information on bankruptcy get it so wrong, I’m perplexed.

Bankruptcy Home, which identifies itself as a group advertising site for bankruptcy lawyers, has community property absolutely wrong.  At least California community property, which is all I’m licensed to deal with.

When one spouse in a community property state files bankruptcy, the site says, the debtor must include the value of one half of the community property.  Wrong, wrong, wrong!

I don’t know whether these lawyers haven’t read the bankruptcy code or haven’t read the site that they pay for.  Neither alternative is flattering to them.

All Community Property Comes In

Here’s what  section 541 of the bankruptcy code says:

 (a) The commencement of a case …creates an estate. Such estate is comprised of all the following property…

(2) All interests of the debtor and the debtor’s spouse in community property as of the commencement of the case that is—

 (A) under the sole, equal, or joint management and control of the debtor; or
(B) liable for an allowable claim against the debtor, or for both an allowable claim against the debtor and an allowable claim against the debtor’s spouse, to the extent that such interest is so liable.
So, while the spouses may each get one half of the community property upon divorce, in bankruptcy, all of the community property comes into the estate.
In exchange for bringing all of the community property into the bankruptcy estate, all of the prefiling community claims are discharged and the non filing spouse’s interest in future community property is protected from pre filing community claims.  We call that the community property discharge.
I know it’s complex, but the complexity of community property doesn’t lie in what comes into the estate, as stated by Bankruptcy Home.  To be credible, bankruptcy lawyers need to get the basics right, and to acknowledge that there are  further complexities.
I first wrote this piece in 2012.  I checked the Bankruptcy Home site before republishing this post. That site remains uncorrected.

Image courtesy of Tambako the Jaguar.

I’m Done Talking About Importance of Retirement Savings

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retirement planning

Shedding debt so you can save for retirement is the most compelling reason to file bankruptcy in my book.

Get rid of the debt that’s dischargeable so you can fund your retirement, I exhort.

Between the crippling cost of housing in the Bay Area and parent loans for college, there is so little margin for discretionary spending that I begrudge every dollar my clients spend on credit card debt.

I cringe when I see families paying American Express instead of their IRA.  I acknowledge the reality of the obligation to the credit card folks.  But the consequences of not paying are vastly different for an individual than they are for credit card issuers.

American Express, and every other consumer lender, built into its pricing model the fact that not everyone who borrowed money on their plastic card would repay.  They still make money whether you pay off your card or not.

American Express doesn’t have to retire, and you do.

With few exceptions, every client I meet without an employer funded or sponsored retirement program has only pennies set aside for retirement.

All that said, when I ask about what the client has saved for retirement, I’m met with one of two retorts:

My house is my retirement is one, superficially convincing in the land of runaway home values.  (Houses don’t make good retirement plans, however.)

But the second is:  I don’t plan to ever retire.

Sometimes the “I won’t retire” is an acknowledgment that they can’t support themselves without a job.  Other times, they are indulging in magical thinking that they will always be capable and valuable to an employer.

The facts of aging, of course, are different.  We’re living longer, markedly longer.  Dementia is on the rise.  The average Social Security check is around $1300.

No more pretty talk

old ageSo, I’ve had it with serving up polite talk about “retirement.”  In this era of blunt speaking, let’s take off the gloves:

My question to clients henceforth is “how are you going to pay for old age?’

We can dance around whether we’re ever going to “retire”; but presumably, we’d all like a long stretch before we die.

And that long stretch requires funds if old age is going to be comfortable.

So, my mantra going forward is discussion of funding old age.

The ugly truth is that savings for old age requires discipline and some degree of self denial.  And many of my clients demonstrate enormous amounts of discipline in making minimum payments and keeping all the financial balls in the air.

Yet none of that discipline is exerted to provide for their old age.

The images of impoverished elders are not pretty.  Don’t find yourself supplying another heartbreaking picture of failure to plan for old age.

 

 

 

 

 

Who Are The Really Scary Creditors

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A debt collector’s threat to sue you usually produces terror.

You’re scared about losing your wages, or your bank accounts.  Scared about being served with process at work.

The threat of a lawsuit often triggers the first call to my law office. Some collector has said he will take 25% of your wages, or will serve a lawsuit, or even will send the account to collection, and the hearer panics.

Can I file bankruptcy today? the caller asks.

So, are debt collectors really that scary?

Lawsuits don’t happen overnight

Remember the idea of due process from high school civics?

Due process assures that the threatened collection suit is not happening immediately.  The threat is weeks, if not months, away.

Due process, at its simplest form in a collection suit, means that you get legal notice and a right to contest the claim of any creditor before they take your property.

So, the only way the average unsecured creditor can take your wages or your assets is to file a lawsuit, serve it on you (there’s your notice) and provide an opportunity for you to resist the suit by filing an answer.

In short, you will see this kind of creditor coming long before they have a legal right to take anything from you.

The scary creditors operate by different rules

Two kinds of creditors don’t have to sue you to take your money.  These are the folks that might take your money today.

Due process works a little differently for your bank and the taxing authorities.

Your bank has a right of offset under state law: it owes you the return of your money on deposit and you owe the bank on a line of credit or other loan.

Because you and the bank each owe the other money, the bank can offset the money you owe it from what it holds for you.  No lawsuit is required.

The right to offset, or set off, mutual debts is often found in state law.  It is also found in your deposit agreement with the bank.

Due process is satisfied because the bank’s right is found in either the agreement between you and it, or in state law.

Tax collectors empowered by law

The IRS also has a right to levy on your account without filing suit for unpaid taxes.

The tax code has requirements about giving you notice of your tax debt and even notice of their intent to levy.  But the IRS does not have to file a lawsuit to collect its money.

So, in my book, the bank and the IRS are the creditors that have real powers to snatch your money on short or no notice.

The collector for a credit card company wants you to think they have immediate and horrific tools to collect their bill, but it isn’t so.

It’s just so much easier for them to collect if they gloss over your right to due process.

More

What to do if you’re sued

Discharging taxes in bankruptcy

Fending off debt collectors

The secret bankruptcy alternative

Image courtesy of dualdflipflop.

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

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