Category: CREDIT BLOG

Protecting Yourself from Common Bankruptcy Scams

Posted on November 12, 2010 by - CREDIT BLOG

If you are facing the pressure of mounting bills, creditors calling your home all day, and compounding interest payments pulling you more and more underwater, looking into the bankruptcy facts might be your best option, but beware bankruptcy scams!
Filing for bankruptcy can be a tricky process, and seeking the help of a bankruptcy expert is not a bad idea. Still, know that some unscrupulous companies will try to take advantage of your financial stress. Knowing what to look for will help you avoid these bankruptcy scams.
Some dishonest companies target people who are undergoing a bankruptcy. But instead of offering legitimate services, these bankruptcy scams profit from the desperation of people in the throes of financial crisis. These companies usually advertise on the Internet, in the newspaper, or directly contact people whose bankruptcies are indicated by public-record notices.
Some companies may charge you for services that you can do yourself. For example, these companies may charge you for pulling your credit report or finding a lawyer, two things you can do on your own, and probably for free. Other companies may offer to file a bankruptcy petition on your behalf. While there are some legitimate bankruptcy petition preparation businesses, many have a reputation for doing shoddy work and submitting petitions filled with errors. As a result, some judges may dismiss your petition outright, making an appeal difficult.
Even worse, many disreputable companies might make unlikely promises. For example, some will promise to remove your bankruptcy by working out a compromise with your creditors. You pay them a chunk of cash, which they promise to distribute to your creditors. When and whether they pay those bills is up for question. And more importantly, no one can remove a bankruptcy from your record!
The number one sign of bankruptcy scams is when the offer sounds too good to be true. There is no magic cure for bankruptcy. If the company is over-promising by saying they can make your bankruptcy disappear, they are not disclosing the full truth.
Also beware of any company that takes your money without informing you of your rights. These might be fly-by-the night bankruptcy scams who will disappear with your cash in their pockets. Call around and ask for referrals from bankruptcy attorneys and industry experts before settling on a bankruptcy company. You will likely have much more luck if you do the research rather than waiting for the company to find you.

How to Find a Good Bankruptcy Attorney

Posted on November 12, 2010 by - CREDIT BLOG

When you are filing for bankruptcy, hiring a bankruptcy attorney might seem like one more expense on top of a ton of other debts that are weighing you down. However, one of the bankruptcy facts is that a bankruptcy attorney will save you a tremendous amount of stress. You may even emerge from the process with more of your assets than you thought possible.
As you search for a good bankruptcy attorney, here are a few things to keep in mind.
Be careful not to fall victim to bankruptcy scams or bankruptcy mills, both of which will cost you money and cause more problems. Some disreputable operators will ask payment for things you can easily do yourself, and others, like bankruptcy mills, will often give you error-ridden, sloppy services that can make your bankruptcy more difficult to navigate. Most often, these operators will prey on your hopes and jeopardize your financial future. Instead, you should avoid cutting corners and make an attempt to find an experienced bankruptcy attorney who will help your case.
To find a good bankruptcy attorney:
 

  • Start by asking around. Look for referrals from any friends or family members who have experienced bankruptcy. If you do not have any personal friends or family members whom you can ask for a referral, call on professional contacts in the industry. Another attorney, a mortgage broker, a banker, or a real estate agent you trust can refer you to a competent bankruptcy attorney.
  • Do some research. Check with professional organizations such as the National Association of Consumer Bankruptcy Attorneys, the American Bankruptcy Institute, or a related local legal aid organization. Attend bankruptcy court and watch a few lawyers in action.
  • Ask for references and related credentials. Once you find a bankruptcy attorney with whom you are comfortable, check his or her qualifications. Call the references and makes sure the attorney’s background is a good fit. Because bankruptcy law is specialized, it’s preferable to hire a lawyer who exclusively works in the field and will have a good idea about recent trends in your state or city.
  • Interview no fewer than three bankruptcy attorneys. Ask prospective attorneys specific questions about their experience and workload. If for example, the attorney works on business bankruptcies, it may not be a good match for your personal bankruptcy. You should also make sure that you will have access to the bankruptcy attorney during the process. After all, you want to make sure the lawyer adequately addresses your case and doesn’t treat you like a number on the wall.

Of course, you can always decide to file without a bankruptcy attorney. But bankruptcy is a nerve-racking experience. A good bankruptcy attorney can help you navigate the process and put your life back in order. With the right attorney, your chances for getting on the fast track to financial stability are much better. And don’t forget: Once you have declared bankruptcy, start learning how to build credit so you can rebuild your credit score!

Keys to Avoid Bankruptcy

Posted on November 12, 2010 by - CREDIT BLOG

If you have lost a job or have experienced a financial catastrophe, you might be worried about your ability to pay your bills, wondering how to avoid bankruptcy. One of the unfortunate bankruptcy facts is that bankruptcy will leave a black mark on your credit report and will severely limit your options until you are able to repair credit after bankruptcy. Though sometimes it is the best choice to handle your financial situation, bankruptcy should be considered only after a thorough analysis of all of your other options that allow you to avoid bankruptcy entirely.
The most common trademark of those faced with an overwhelming amount of debt is the tendency to ignore the situation. By keeping your head buried in the sand, you are only causing the problem to worsen rather than seizing the opportunity to change your fate. Embarrassment is the reason many people give for the failure to address their financial problems. Unfortunately, some people may attach a stigma to bankruptcy, seeing as a sign of moral failing.
However, is you want to avoid bankruptcy, avoiding the problem is the worst thing you can do! And keep in mind that several prominent Americans, including Mark Twain and Walt Disney, have claimed bankruptcy. Sometimes bankruptcy may be precipitated by an unforeseen job loss, divorce, or medical crisis. Other times it may be due to poor business decisions or financial negligence. Whatever the reason, avoiding the problem will only make matters worse. The most important thing you can do is to decide to fight back because you do have options, even in the darkest of hours
To avoid bankruptcy, start by calling the hardship department for your bank. The incredible economic turmoil of recent months has lead to new priorities for the financial industry and newly available opportunities for you. Many banks are looking to work out alternative solutions instead of taking a huge loss. In the event of a bankruptcy, creditors will be left with nothing. Though lenders are not obligated to change the terms of your loans, by being proactive and asking, you might be able to work out an alternative payment plan or a loan modification to stave off bankruptcy.
In order to gain financial relief you might also consider consolidating your debts. Debt consolidation the combination of all your debts into one loan so that you make only one payment at a time. Depending on your circumstances, this can be a good way to regain stability and gradually repair your credit. You might also consider hiring a debt consolidation company, but be very careful or your money worries will be compounded by dodgy outfits that will rip you off.
Despite your best intentions, it may be impossible to avoid bankruptcy in some cases, and in others, considering all your bankruptcy options may be your best course of action. If you are trying to keep your head above water with a plan that is not working, bankruptcy might be preferable to more financial stress, harassing calls from collectors, and a burgeoning debt caused by an increasing load of interest and late fees. In this case, it’s easier to wipe the slate clean and start over. Additionally, depending on the type of bankruptcy you file for, you may be able to hold on to property.

The Forms of Bankruptcy Options

Posted on November 12, 2010 by - CREDIT BLOG

Question: What are the bankruptcy options for those who have been through a taxing financial crisis?
Answer: If your financial life is spiraling out of control, with late payment fees and interest multiplying faster than you can them, considering the bankruptcy facts might be the best option that allows you the room to piece your life back together and make a fresh start. Take a look at some of your bankruptcy options to see if this is a good choice for you and your situation.
Six types of bankruptcy exist: Chapters 7, 9, 11, 12, 13, and 15. However, only two of these are legitimate bankruptcy options for individuals, Chapters 9, 11, 12, and 15 are specialized bankruptcies for municipalities, business corporations, family farmers and fishermen, and international ancillaries, respectively.
Individuals usually file for one of two bankruptcy options: either Chapter 7 or Chapter 13, depending on your level of debt and the assets you are trying to keep. Both bankruptcy options remain on your credit report for 10 years.
Individuals, corporations, or partnerships may file for Chapter 7 bankruptcy, which is also known as liquation or straight bankruptcy. In a Chapter 7 bankruptcy, all your assets are liquidated, and the proceeds from these sales go to your creditors.
Chapter 13 bankruptcy is intended for individuals with debts that do not exceed $1,230,650. Chapter 13 is considered less toxic to your credit score. A Chapter 13 bankruptcy involves working out a payment plan with creditors, resulting in creditors ceasing collection attempts. After you make the payments to the creditors, you can receive a discharge. The benefit of this option is that you can retain a leased car or a mortgaged house, but you need to repay all your remaining debts over a three- to five-year period or else creditors will confiscate your assets.
Because bankruptcy is such a complex process, it is highly recommended that you hire an attorney to discuss your bankruptcy options. Bankruptcy has important implications for your finances and for your legal status, so having an experienced bankruptcy lawyer can prevent you from making serious mistakes. For example, an attorney might be able to advise you about property that is exempt from asset collection in bankruptcy. As well, an experienced attorney can help you answer the important question: “Should I file for bankruptcy?”
If you so choose, you may be able to file on your own, or pro se. Be prepared to do a lot of work to research the bankruptcy code and any special laws unique to your state or county. Generally, filing pro se is only recommended when you are attempting a relatively simple bankruptcy and don’t have any major assets at risk.
If you are filing for Chapter 7 bankruptcy, you might want to ask your attorney about reaffirming part of your debt, a process that will allow you to preserve a debt through bankruptcy so that you can pay it off. It might sound strange to consider keeping a debt.
What? you might be thinking. Reaffirm a debt? Isn’t bankruptcy an opportunity to wipe the slate clean?
It is, but reaffirming a debt might have some benefits. Some proponents of this strategy argue that if you continue to pay on one or two of your existing accounts, you will help your credit score by showing credit-scoring bureaus that you did not shirk all your debt. Reaffirming a debt that is in good standing may help you in some circumstances, such as when you have a small amount on a credit card you have had for several years. By keeping the debt, you will keep the account active and thereby take advantage of the age of the account. (Credit-scoring bureaus assign 15 percent of your credit score to the length of time of your credit accounts.)
However, if you reaffirm too many debts, you will miss the best opportunity offered by bankruptcy: a chance to start over without bearing the weight of your previous debts. Reaffirming debt is a complicated decision and among the bankruptcy options you should discuss with a qualified attorney.
If you are considering your bankruptcy options, be sure to do your homework and make the best decision for your situation. If you are unable to avoid bankruptcy, being strategic as you work through the process will help you gain some control in your life and start working for a brighter future. And, of course, don’t forget to start the process to repair credit after bankruptcy!

Should I File for Bankruptcy?

Posted on November 8, 2010 by - CREDIT BLOG

Should I file for bankruptcy? If you have creditors that are calling at all hours and bills that are piling up faster than you can pay them, you have definitely asked yourself this question. While you should always pay back your bills—it’s the right thing to do—you might have no choice but make a clean break. One of the harder bankruptcy facts to accept is that sometimes bankruptcy is the best option.
If you are wondering, should I file for bankruptcy?, spend some time thinking about your various options:

  • You might think about debt consolidation, which can combine all your debts into one loan so that you can make one payment at a time.
  • Hiring a reputable debt consolidation company is also an option, but like debt settlement companies, some unscrupulous companies might end up costing you time and money.
  • Loan modification programs and reductions in payments are another option for distressed homeowners. Perhaps you can contact the hardship departments for your creditors and ask them to consider a change in terms that will allow you to float above water. Especially during a financial crisis, banks want to help their clients make their payments. They know that many people are teetering on the verge of bankruptcy. In fact, you might want to call your mortgage lender and ask: “Should I file for bankruptcy, or can I qualify for a loan modification program?” Rather than having all your debt discharged during a bankruptcy, many creditors will simply lower your payments. After all, something is better than nothing.

“Should I file for bankruptcy if none of these options are available?”
That said, if you have exhausted all options, you might want to consider filing bankruptcy, especially if you face the possibility of losing property. (Bankruptcy enables many people to hold on to their property despite their financial woes.) The first determination that you need to make as you consider bankruptcy is based on your finances. If you are in a situation where you can’t dig yourself out from a mountain of debt, then bankruptcy can stop creditors from charging late fees and interest on your bills. If you are at this point, considering one of the various forms of bankruptcy options may be the best option so you can make a fresh start. Plus, you won’t have to worry about being harassed by creditors every day and losing sleep as a result of worrying about your debts.
That said, a bankruptcy will definitely harm your credit, but if you are already too deeply in debt to repay your debts, your credit will probably be severely tarnished after several more years of collection notices and repossessions.
Once you declare bankruptcy, the next step in regaining your credit is to embark on a robust credit repair campaign. If you can improve your credit score by changing your habits and paying your bills on time, you can slowly begin regain financial stability. In fact, if you are diligent about repairing your credit and establishing good financial habits, you might even qualify for a home loan within two years of declaring bankruptcy!
Ultimately, your question—”Should I file for bankruptcy?”—is a personal one. You must learn how to create a budget, consider all of your bankruptcy options, and then make a strategic choice. If you cannot find a light at the end of the tunnel and know that bankruptcy is eventually inevitable, you should begin the process today so you can start rebuilding your future and your credit score.

Collections Account on Credit Report: Option #4

Posted on November 8, 2010 by - CREDIT BLOG

Here is the riskiest option for dealing with collections account on credit report. In fact, before you read about this option, I should tell you that I think paying your debt is your responsibility. It is always the right thing to do.
Collections Account on Credit Report: Option #4
But some folks do not suffer from a crisis of conscious, so they want to employ this option for dealing with a collections account on credit report. They simply refuse to pay the collection item, arguing these pros:
Your credit will be only nominally affected four years from the last payment you made on the account, and it will being to improve significantly in as little as two years. And of course, if you do not pay the collections account on credit report, you have lots of room to try to negotiate for a letter of deletion down the road.
But before you employ this option, be sure you know about the cons:

  1. You could get sued.
  2. Creditors will continue to contact you.
  3. Your will never satisfy your agreement with the creditor.

Collections Account on Credit Report: Option #3

Posted on November 8, 2010 by - CREDIT BLOG

The best way to handle a collections account on credit report is to negotiate for a letter of deletion. But the truth of the matter is this: Sometimes you will be unsuccessful. Here is your third option for dealing with those pesky collection accounts.
Collections Account on Credit Report: Option #3
You could always make payments on the collection item. This is one of my least favorite options. Most of the time, I think you are far better off saving the money and making one payment. However, if you have a problem saving money, and you feel obliged to satisfy your agreement with the creditor, this might be the best option for you. Keep in mind that your score will drop each time you make a payment.
The pros of this option follow:

  • Eventually, you will satisfy your agreement with the lender.
  • If you are able to negotiate a payment plan, the collector will stop calling you and probably will not sue you, so long as you pay on time.
  • You can always call back and try to negotiate for a letter of deletion while you are making payments.
  • You might be able to negotiate for cents on the dollar.
  • If the debt is more than two years old, you might be able to convince the creditor to stop reporting payments to the credit bureaus so that your credit score can be preserved.

Like I said, making payments on a collections account on credit report is one of my least favorite options. Here are the cons:

  • If you are unable to negotiate for a payment plan, you might be sued, and the collectors will definitely keep calling you.
  • If you do not negotiate to have the creditor stop reporting to the bureaus, your credit will keep being dinged, and you will not be able to make significant improvements to your credit score until you have paid the debt in full.

If you choose this option, be sure you know how to fix credit! And be sure to read about the other options for dealing with collections account on credit report.

Collections Account on Credit Report: Option #2

Posted on November 8, 2010 by - CREDIT BLOG

In my last post, we talked about the first option for dealing with a collections account on credit report. This week, let’s talk about the second option.
Collections Account on Credit Report: Option #2
You could always wait for the right time to pay the collections account on credit report. If you are planning on making a purchase in the near future, paying a collections account might not be wise as it could hurt your credit score. In this case, just wait until you have made the purchase, then pay the account. The pros of this option:

  • First, you will eventually satisfy your agreement with the creditor. There is a certain amount of peace of mind in fulfilling an obligation. The phone calls will end, the worries will end.
  • You might be able to negotiate for a letter of deletion when you do make the payment.
  • This will allow you to delay the damage to your credit score until after you have made your purchase and secured decent interest rates. This is particularly true if you have not made a payment on the account in more than two years. If this is the case, your score probably isn’t suffering much from the past mistake, so paying it could cause an okay score to turn into a bad credit score.

The cons: You will prolong the suffering. if you wait to pay the debt, your credit score will likely drop in the future. And in the meantime, creditors and collection companies will continue to hound you about the payment. And let’s not forget that you can always be sued for failing to pay a debt.
Still, this might be the smartest strategy if you are unable to secure a letter of deletion now, and you plan on making a large purchase in the future. Keep in mind that some banks will insist you pay a collections account on credit report before giving you a home loan. As you know, paying your collection could damage your credit score, so this is risky business. The last thing you want to do is hurt your credit and have the lender pull your credit report again! To avoid this sort of repercussion, pay your collection at the close of escrow. This way, you will preserve your credit score until the last possible minute.

Collections Account on Credit Report: Option #1

Posted on November 8, 2010 by - CREDIT BLOG

If you have a collections account on credit report, the first thing you should do is read our article about addressing credit collections head on and attempting to negotiate for a letter of deletion.
The truth of the matter, though, is that sometimes you will be unable to negotiate for a letter of deletion. If this is the case, you have four options:
Collections Account on Credit Report: Option #1
You could immediately pay the collections account. The pros of this are pretty straightforward:

  • As long as you take all the necessary steps and learn how to fix credit, your credit score will be only minimally affected after just two years.
  • If the collections account appeared on your credit report in the past few months, your credit score is suffering regardless, so this option will not significantly lengthen the amount of time your score suffers from the slip-up.
  • You won’t be sued for failing to pay the debt.
  • Your agreement with the creditor will be satisfied in full, so those harassing phone calls will stop!

Now let’s take a look at the cons:

  • Your credit score will probably take a hit. Remember that paying a bill in collections often causes a person’s score to drop.
  • The item will remain on your credit report for seven years. You will have no leverage to negotiate for a letter of deletion.

If the collections account on credit report is relatively new, and you don’t plan on making a large purchase in the next two years, this might be your best option. Be sure to pay the debt instead of making payments. Remember that each time you make a payment on a collections account, your score will take a hit.
If you choose this option, try to negotiate a smaller payment. A lot of creditors will settle for cents on the dollar, especially if you have a bad credit score and they think you might enter bankruptcy. After all, they would rather receive something than nothing!
Here’s another tip you might want to consider: In some cases, you might be better served by asking the creditor not to report the payment to the credit bureaus. I know this seems counter-intuitive, so be sure to read Chapter 6 of 7 Steps to a 720 Credit Score before taking action. If the collections account on credit report is old and you have not made payments for the past two years, the payment might hurt your score. Asking the creditor not to report the payment could preserve your existing score.

How Does Foreclosure Work?

Posted on November 4, 2010 by - CREDIT BLOG

Question: How does foreclosure work?
Answer: If you are behind on your mortgage payments, you might be facing a foreclosure in the near future and wondering: How does foreclosure work? In this unfortunate event, it’s important that you understand the foreclosure process and know what your options—both to avoid foreclosure and minimize its impact.
The Truth in Lending Agreement and other regulatory bodies guide the way a foreclosure unfolds. That said, foreclosure is impacted by the laws and regulations of each state, so procedures may vary from state to state.
So how does foreclosure work? The foreclosure process begins when you are behind on your payments, including both the principal or any interest that has accrued. A homeowner receives a grace period of 15 days from the due date (usually the first of the month) to make a payment. Any late payment past the 15-day grace period will incur a 5 percent late fee. A payment that is 30 days past due will also result in a delinquency notice that will appear in your credit report.
If a mortgage is marked as delinquent for 90 days or more, lenders have the option to file a Notice of Default, or a document that allows them to formally start the foreclosure process. Once this notice is filed with the state, you have a pre-determined (depending on the state) number of days, though typically 30, to pay the requested amount of money to keep the mortgage up to date.
Soon after, your lender can obtain a legal judgment that will leave you with no right to the property and an immediate to vacate as soon as possible. Some banks have “cash for keys” programs that give homeowners a payment as an incentive to leave the property in a good condition. After a foreclosure, many disgruntled homeowners will strip a house of appliances, sinks, and even copper wiring, property that now belongs to the bank. This behavior is considered vandalism or theft and may cause former homeowners legal trouble.
After the bank confiscates the house, the home will be placed on the market in what is known as a trustee sale. This is announced by a Notice of Sale, which is posted on the property. Buyers are able to bid on the home, provided they meet the amount owed to the bank. If none of the bids meet this criterion, the house will be considered an REO, or real estate owned property. An agency will then try to sell the foreclosed home until the full amount owed to the bank is obtained.