Rebuilding Credit After Bankruptcy

Rebuilding Credit After BankruptcyBankruptcy is one of the most negative events that can appear on a consumer credit report. Anyone who tells you otherwise is either sugar-coating the truth or is not very experienced in these matters. The key phrase is “one of” the most negative events, because most lenders consider repossession, foreclosure and referral to collections as more negative than bankruptcy – in most of those situations, the borrowers simply gave up.

Chapter 7 Bankruptcy means a fresh financial start for you and your family, and there are some proven methods to help you raise your credit score.

Correct Inaccuracies

Theoretically, all the debts included in Schedule E should have a remark that the account was included in bankruptcy. Pragmatically, some do and some don’t. Sometimes the entity is a recent debt-buyer who did not receive notice of the filing, sometimes the paperwork gets lost in the shuffle, and sometimes the moneylender simply refuses to update its records.

The Fair Credit Reporting Act gives you the power to dispute any inaccuracies in your report. It may seem tedious to contest every little error, but when you are rebuilding your FICO score, every point counts.

Be Realistic

When you seek a mortgage loan or other credit, you will pay a higher interest rate and you may even be denied altogether, if it is too soon after your discharge. Always be upfront with the lender by informing the loan officers about your credit history before they run your report. If at least twelve or 18 months have passed since the discharge, you have no new problems and you have a reasonable explanation for what happened, most lenders are willing to work with you.

Pay Bills

One of the best ways to build credit history is to borrow money and timely repay it. A secured credit card is a good option for many families. Watch your credit report, because some cards state that they are secured, and your FICO score may not increase as much. There is some debate as to whether you should leave a small balance on the card or pay it off every month. The best thing to do is to experiment with both methods, and see how it affects your score.

Also, pay your existing bills on time, especially those accounts that are reported to the credit bureaus, like home mortgages and auto loans. Never leave a balance and do not be even one day late, if at all possible.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

The Check Is In The Mail

The Check Is In The MailAs of February 20, the IRS says it processed about 50 billion 2014 income tax returns. 83 percent of these filers received an average refund of $3,120.

The number may be somewhat skewed, since taxpayers who anticipate large refunds tend to file earlier in the season. Over the past several years, about eight in 10 taxpayers qualified for an average refund of $2,800. The news was not all good, as Service officials acknowledged that budget cuts had triggered extremely long wait times on the IRS telephone hotline.

To help guard against hackers, the IRS suggested that online taxpayers sign up for an additional PIN.

Bankruptcy and Tax Refunds

Many people look forward to a large tax refund every spring, and they may even over-withhold a few dollars a month to put more change in the piggy bank. Other people question the wisdom of this approach, as they view an income tax refund as an interest-free loan to the government.

Financial windfalls like a tax refund, lottery prize, escrow refund and inheritance are all part of the bankruptcy estate, and all assets in the estate are subject to distribution among the creditors, unless the asset is exempt. When you file bankruptcy, all anticipated windfalls, and their expected value, should be listed on Schedule B. If you file Chapter 7, the additional money should not affect the means test. If you receive an unexpected windfall, you can generally amend Schedule B without affecting the discharge date.

Most filers in New Jersey use federal exemptions, so the cash windfall can be exempted under the federal wildcard, in many cases. In most courts, a Chapter 13 trustee does not ask a filer to turn over a tax refund, so the issue may not even come up.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Is Atlantic City The Next Big Municipal Bankruptcy?

Is Atlantic City The Next Big Municipal Bankruptcy?Two prominent Wall Street rating firms recently downgraded Atlantic City to near-junk status, after Gov. Chris Christie appointed an emergency management team to handle the finances of America’s Favorite Playground.

Last month, both Moody’s and Standard & Poor’s rating services dropped Atlantic City’s credit rating several notches, from BB to BBB+. The downgrade makes it more difficult for Atlantic City to borrow money, as it tries to stave off bankruptcy. An S&P analyst called the management team a “draconian” action that “has a greater likelihood of being detrimental to bondholders.” Moody’s said that Gov. Christie’s action may have ramifications for other financially-challenged New Jersey cities, including Newark and Patterson.

Four of Atlantic City’s 12 major casinos have closed in the last year, leaving the city with a greatly reduced tax base and nearly $400 million of debt.

Handling Bankruptcy

Atlantic City may hold a common misconception about bankruptcy, which goes back to the days of seemingly endless “Monopoly” games played out on the kitchen table, the living room floor, or a folding card table in the den. As you moved your racecar, iron, thimble, or battleship around the board, the worst thing you could do was file bankruptcy. That was the end of the game, and there was no hope of recovery.

Fortunately, the real thing works a bit differently. For one thing, a house on James Place may cost a little more than $50. More to the point, Chapter 7 Bankruptcy gives you a fresh start. Imagine that you have to take the red plastic hotel off of Pacific Avenue, but you keep the card face up and are soon able to start building it back up again. That, in a nutshell, is bankruptcy.

If you have more debt than you can pay, you can take the Atlantic City approach, and try to keep your head above water for a few more months and hope that things get better somehow. Or, you can take control of the situation and reach out to a Chapter 7 Bankruptcy attorney in Barrington. The experience may be somewhat uncomfortable in the short term, but you’ll be back at the financial starting line is as little as a few months, with little or no unsecured debt, more manageable secured debts, and a much brighter financial outlook.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Don’t Let This Happen To You

A pair of recent decisions have some important lessons for your Chapter 7 Bankruptcy case, because they both deal with very common issues.

The Wrong Place

Don’t Let This Happen To YouIn Okechuku v. Sharp Management, a New Jersey sheet metal company filed a voluntary Chapter 7 petition. Shortly thereafter, the trustee filed a motion for turnover, claiming that Norman Sheet Metal & Mechanical owed over $100,000 in unpaid invoices to Sharp Management. NSM&M filed an unopposed motion to transfer the matter to U.S. District Court. It then almost immediately filed a motion to dismiss, claiming that the district court did not have jurisdiction. The judge granted the motion and dismissed the action, so NSM&M didn’t pay a dime to Sharp Management.

The case is confusing. This sheet metal company was a New Jersey LLC, but one member lived in New York and one in New Jersey. The trustee evidently believed that the district judge had jurisdiction, because of the diversity of citizenship. Instead, the court ruled that both the LLC and trustee were from the same state, so the matter could not be heard in federal court.

Especially when an emergency filing is involved, it is not uncommon for a case to be filed in the wrong jurisdiction. Even if that mistake can be fixed, it may lead to costly and unnecessary delays. In a similar vein, it’s also important to hire a local bankruptcy lawyer who is familiar with all the local rules and procedures, because many of these rules are unwritten.

The Wrong Attitude

A day before the Okechuku decision, the bankruptcy court refused a rather routine request because of the party’s behavior.

In Re Askman centered on Sergey Ishin’s request to extend time prior to discharge. Mr. Ishin was a creditor in the Chapter 7 Bankruptcy, and he was involved in a lawsuit against the debtor. Mr. Ishin received prior notice of the Creditor’s Meeting, but he neither attended that meeting nor requested an adjournment. Michael and Melinda Askman, on the other hand, attended the Creditor’s Meeting and timely responded to the Trustee’s request for more information. About two months later, and just two days before the discharge date, Mr. Ishin asked to extend the discharge date to investigate his claim against Mr. Askman.

When you were a child and you asked your mother to take you to a movie, she may very well have asked “did you do your homework and clean your room?” The same thing is true in a court of law. It is almost impossible to convince the judge to do you a favor if you have missed a deadline or ignored an order without a very good excuse for you conduct.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Of Chapter 7 And Security Clearances

Of Chapter 7 And Security ClearancesWorkers at Fort Dix, Fort Monmouth, the FBI in Newark, and other employers in The Garden State sometimes hesitate to file Chapter 7 Bankruptcy because they’re afraid of losing their security clearances. While bankruptcy debtors may face some increased scrutiny, there are some very important legal protections in place.

Federal Law

11 U.S.C. 525 prohibits discrimination against those who file a voluntary petition. Subsection (a) states that “a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant. . . solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act.”

The key phrase is “solely because.” A bankruptcy filing does create some very serious questions about a person’s fitness to hold a security clearance, and if you were on the other side of the desk, you would probably ask the same questions about one of your employees. Fortunately, there are also some very good answers to these questions.

As a brief aside, subsection (b) applies the same prohibition to private employers and subsection (c) forbids bankruptcy discrimination in student loan matters.

Department of Defense Guidelines

Financial responsibility is one of several considerations, along with foreign preference, alcohol consumption, sexual behavior and a few others, in a security clearance. There is no automatic disqualification in any of these areas. Plenty of people have friends or relatives overseas, drink beer on the weekends or are unfaithful to their partners, but these individuals retain their status.

DoD Directive 5220.6, Guideline F, works the same way. The concern, at least where bankruptcy is concerned, is that a person with money problems may turn to illegal acts as a way to generate funds. Some additional considerations include:

  • History of Unmet Financial Obligations: If this matter is your first filing and it can be traced to divorce, illness or a sudden financial trauma, as is generally the case, this question is arguably inapplicable.
  • Deceptive Financial Practices: Very few consumer bankruptcies involve embezzlement, fraud, income tax evasion and other financial crimes.
  • “Issues of Security Concern”: Similarly, very few filings are directly attributable to gambling, alcoholism and drug abuse.

There is more good news. Directive F goes on to list several “mitigating factors” which usually can be found in a Chapter 7:

  • Isolated Incident: Most bankruptcies do not involve a pattern of reckless spending or prolonged financial irresponsibility.
  • Lack of Control: On the contrary, most bankruptcy filings do involve divorce, business downturn, illness, job loss and other similar incidents.
  • Debt Counselling: All debtors receive debt counselling and debtor education, and most seek financial advice from other sources as well.
  • Good Faith Effort to Resolve Debt: If you lack the funds to pay your debts, bankruptcy is the best way to legally resolve them.

People file bankruptcy to get a fresh start, and it is impossible to get that fresh start if you lose your job. That may be the main reason that most debtors get to keep their security clearance.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Exceptions to the Automatic Stay

Exceptions to the Automatic Stay under the Bankruptcy Laws

When you file for protection under Chapter 7 or Chapter 13, the automatic stay under the Bankruptcy Code immediately goes into effect, prohibiting your creditors from calling, writing or taking other legal action to collect a debt from you. There are, however, specific types of legal actions that will not be affected by the stay.

Exceptions to the Automatic Stay under the Bankruptcy LawsTax Actions

The Internal Revenue Service, as well as state tax authorities, can still take certain actions, such as demanding payment of an assessment, requiring a tax return, conducting a tax audit or issuing a deficiency notice.

Family Law Obligations

Generally, child support and spousal support/alimony arrearages are not affected by a bankruptcy filing, and state enforcement agencies are not prohibited from collection efforts. Accordingly, if you have a child support or spousal maintenance deficiency, the collecting agency may engage in a wide range of actions in an effort to collect the amount past due, including:

  • Withhold money through your employer to pay current and past due child support
  • Attach any refunds from state or federal revenue agencies
  • Report your overdue support obligations to a credit reporting agency

The filing of a bankruptcy petition will have no impact on your obligation to pay ongoing support, or on custody or visitation determinations. The court may also modify your support order.

Pension Loans

If you borrowed money from a 401(k) or other company retirement plan, the imposition of the automatic stay won’t prohibit your employer from deducting an amount from your paycheck to repay the loan.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

‘Real Housewife’ Changes Addresses

Erstwhile reality TV star Teresa Giudice surrendered to federal authorities in Connecticut to begin her 15-month prison sentence for bankruptcy fraud. After she completes her term, her husband, Giuseppe Giudice, will begin serving a 41-month sentence.

Last year, the couple pleaded guilty to charges that they concealed assets in their Chapter 7 Bankruptcy. Mr. Giudice also pleaded guilty to tax evasion, loan fraud and mortgage fraud. He will serve an 18-month sentence for presenting a false identification concurrently with the federal prison term. Mr. Giudice, who is not an American citizen, also faced possible deportation proceedings.

Under federal sentencing guidelines, Ms. Giudice is not eligible for release until December 2015.

Bankruptcy Fraud

‘Real Housewife’ Changes AddressesWhen filing your voluntary petition, it is important that you be completely upfront with your attorney about all your assets. Most of them are exempt, and the trustee normally only seizes nonexempt assets if there is a benefit to the creditors or the bankruptcy estate. So, there is a good chance that you may be able to keep your used fishing boat, because by the time the trustee pays off the loan balance, prepares the boat for sale, and stores it until a buyer is found, the creditors may see very little money, if any.

Bankruptcy fraud is a very serious charge that carries a penalty of up to five years in prison and/or a $250,000 fine. In addition, the court will normally order that your debts will not be discharged. A prosecutor must prove that:

  • A bankruptcy case was pending: It may be a defense if amended schedules were filed prior to the date of the indictment.
  • The property was part of the bankruptcy estate: All nonexempt property is part of the bankruptcy estate.
  • The debtor concealed property: This can mean hiding assets, preventing discovery, withholding information or transferring property. The concealment does not have to be successful.
  • With intent to defraud: A jury will normally infer intent if the prior three elements are clearly established, unless the debtor has a really convincing explanation.

The government normally adds mail fraud and/or wire fraud charges, as well as other allegations, which significantly increases the potential penalties.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

When Do I Start Receiving Bankruptcy Benefits?

When Do I Start Receiving Bankruptcy Benefits?In some ways, your financial fresh start occurs the moment you file for bankruptcy, as your creditors are immediately prevented from taking actions against you or your property to collect their debts. The debts are then officially wiped out when you receive a discharge order in a Chapter 7 or Chapter 13 Bankruptcy.

When Can I Get A Home Loan?

Many of our clients ask how long they must wait before they can apply for a residential mortgage after filing for bankruptcy. Specific requirements may vary between lenders, so it is best to shop around. But, there are some general industry standards:

  • Fannie Mae: Lenders are eligible for a loan as little as two years after a Chapter 7 or Chapter 13 discharge, although some borrowers may have to wait four years after a Chapter 7. Either way, that is considerably less time than the seven year wait after a foreclosure.
  • Freddie Mac: The same general waiting periods apply, but Freddie may be a bit more rigid.
  • FHA: These loans are generally the most forgiving when it comes to past credit problems. Borrowers with a Chapter 7 must wait a maximum of two years, while Chapter 13 debtors can be eligible in only one year.
  • VA: Borrowers are eligible for a loan under $417,000 within two years after a Chapter 7 or Chapter 13 Bankruptcy.
  • USDA: The waiting period after a Chapter 7 is three years, and a borrower who is still in Chapter 13 can qualify after a year of on-time trustee payments.

These values may be changing, as Congress and the White House may consider unwinding the government’s control of Fannie Mae and Freddie Mac in the coming year.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Stopping a Home Foreclosure with Bankruptcy

Bankruptcy and Foreclosure Proceedings

Stopping a Home Foreclosure with BankruptcyIf you are struggling to meet your financial obligations, and have fallen behind on your mortgage payments, you may be worried about a foreclosure proceeding and the loss of your home. You may be considering filing for bankruptcy to prevent or stop foreclosure proceedings. Here’s what you need to know.

The most important thing to understand is that bankruptcy won’t terminate a foreclosure proceeding—it will only suspend a foreclosure action. Once your bankruptcy is complete, your lender can move the process forward again.

That doesn’t mean, however, that a bankruptcy filing won’t help you keep your home. Upon the filing of a bankruptcy petition, an automatic stay will go into effect, preventing your creditors from calling, writing or taking any other legal action to collect debts from you. The automatic stay can get you some relief from the constant outflow of cash. In addition, by discharging other debts, you may be able to free up the funds to make your monthly mortgage payment affordable.

It is also important to understand that you cannot seek to discharge the debt on your home in a Chapter 7 proceeding and still keep the house. Both state and federal bankruptcy laws grant you a certain dollar amount exemption in your home in a Chapter 7 filing, but it’s an exemption in the equity in your home. Unfortunately, you can only recognize the equity in your home when you sell it.

The best way to save your house through bankruptcy is to file Chapter 13 reorganization and work out a new payment plan with your mortgage lender. You will still get the benefit of the automatic stay, and will have that benefit for a three-to-five-year period. In many instances, when you reorganize, you can get your lender to waive late fees and penalties, and fold any arrearages into the principal balance of your note.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

The Means Test

The Means Test in Bankruptcy

The Means Test in BankruptcyBefore 2005, persons seeking to file bankruptcy could generally choose between a Chapter 7 liquidation proceeding and a Chapter 13 reorganization. However, as a part of the revisions to the federal Bankruptcy Code in 2005, Congress set limits on who may qualify to discharge debts under Chapter 7. To be eligible, you must now submit to what is known as the “means test.”

The purpose of the means test is to determine whether you reasonably have the capability to repay your creditors rather than having your debts discharged. The means test is designed to keep persons with high incomes from discharging debt and immediately having substantial discretionary income that could have gone to creditors. Under the means test, however, you don’t have to be without income to qualify for Chapter 7. Here’s an overview of the how the means test works.

Determining Your Eligibility for Chapter 7

The first question the bankruptcy court will ask: Is your income less than the median income in your state for a household of your size? If so, you don’t have to go any further—you qualify.

If, however, your income exceeds the median income, you must document your expenses to determine whether you have enough income left after paying “allowed expenses” to pay some portion to your creditors. If your income exceeds your total expenses by a specified amount (which varies from state to state), you fail the means test and must file a Chapter 13 petition if you choose to use bankruptcy to get a fresh financial start.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.