by Bill Bronchick
The "Ask the Wiz" board has become inundated with questions about bankruptcy, foreclosure, credit and how it affects your business, your finances and your real estate.
The following are answers to common questions:
Q: "WHAT IS THE DIFFERENCE BETWEEN CHAPTER 13 AND CHAPTER 7 BANKRUPTCY"?
Chapter 7 Bankruptcy is a complete liquidation of your assets and debts. With few exceptions, all of your debts and contractual obligations are wiped out in Chapter 7 Bankruptcy. However, all of your assets may be subject to liquidation and sale. There are some exemptions in bankruptcy; that is, some items that you cannot lose in bankruptcy. These items are set forth in 11 United State Code Section 522:
Real property, including co-op or mobile home, to $15,000 Disability
illness or unemployment benefits
Life insurance payments for person you depended on, needed for support,
Life insurance policy with loan value, in accrued dividends or interest, to $8000
Unmatured life insurance contract, except credit insurance policy
Alimony, child support needed for support
ERISA-qualified benefits needed for support
Animals, crops, clothing, appliances, books, furnishings, household goods,
musical instruments to $400 per item, $8000 total
Health aids
Jewelry to $1000
Lost earnings payments
Motor vehicle to $2400
Personal injury recoveries to $15,000 (not to include pain & suffering or pecuniary loss)
Wrongful death recoveries for person you depended on
Crime victims' compensation
Public assistance
Social Security
Unemployment compensation
Veterans' benefits Implements, books & tools of trade to $150
There is not much to keep, but state law may provide additional (or different) exemptions. In addition, good advance planning may allow you take advantage of the exemptions to their fullest extent. A good bankruptcy attorney can help (this is why you should shop for talent, not price when choosing a bankruptcy attorney).
Chapter 13 bankruptcy is like a forced settlement on your creditors (called "reorganization"). In most cases, you will be paying back 100% of your debt (especially secured debts, like mortgages), but on a 3 to 5 year payout. Chapter 13 is good for people who own a house, are still working and can continue to make monthly payments. If you are not working and your debts exceed your assets, Chapter 7 is usually more appropriate. You can always start Chapter 13, then convert to a Chapter 7.
Q: WHAT DEBTS ARE NOT DISCHARGEABLE?
With some exceptions, the following debts remain even after bankruptcy:
Child support & alimony
Student loans that became due less than 7 years ago
Federal and state income tax obligations less than 3 years old
Debts for restitution from criminal convictions and drunk driving
Debts the bankruptcy court decides where from intentional acts, fraud or wrongdoing (e.g., lying on your bank loan application).
Q: WHAT IS CHAPTER 11 BANKRUPTCY?
Chapter 11 is reorganization for businesses and individuals with debts too large for Chapter 13.
Q: WHAT HAPPENS IF MY TENANT FILES FOR BANKRUPTCY?
The filing of a petition for bankruptcy (7 or 13) automatically "stays" any collection efforts of creditors. This means you cannot evict a tenant for foreclose upon a borrower (or, if you have started, must stop proceedings) who has filed. This "stay" does not last forever; you can march into bankruptcy court and request that the stay be lifted against you so that you can proceed with the eviction. Thus, bankruptcy may only delay an eviction a month or two.
Q: HOW LONG DOES BANKRUPTCY STAY ON MY CREDIT REPORT?
Information about your bankruptcy can remain on your credit report for up to 10 years.
Q: I WAS DIVORCED, AND MY SPOUSE GOT THE HOUSE - HOW CAN I GET MY NAME OFF MY MORTGAGE?
You can't. If you borrow money to purchase or refinance your home secured by a lien on your home, the lien remains when you transfer your half of the property to your spouse. However, the promissory note you signed for the debt still remains your obligation. If your ex-spouse is now in default, you should get try to get a deed back. Once you own the property again, you can negotiate with the lender, rent the property or sell it. Once you give up your ownership, you are out of luck, yet still on the hook.
Q: MY HOME LOAN IS IN DEFAULT - WHAT HAPPENS NOW?
If you are default on your payments, the lender can commence foreclosure proceedings to take back the property. This can take anywhere from 4 to 9 months, depending on what jurisdiction you live. In addition, the lender will have to evict you from the property after the foreclosure is complete. Since most lenders do not start proceedings until you are in default at least three months, you may have up to a year or more to remain in the property. Furthermore, you have a legal right to contest the foreclosure proceeding (if you have legitimate legal defenses, such as improper procedure) or even file for bankruptcy. Properly used, the legal system can buy you months of time. However, if you abuse the system, you can be sanctioned by the court, be required to pay fines and be denied discharge in bankruptcy.
Where do I Get a Copy of My Credit Report?
There are three major "credit bureaus" that keep a file of your credit history.
EQUIFAX
Post Office Box 105252
Atlanta, GA 30374
TRANSUNION
1561 E. Orangethorpe Ave
Fullerton, CA 93831
EXPERIAN (formerly "TRW")
Post Office Box 2106
Allen, TX 75013
In some states, you can obtain a free copy once a year just for the asking. You can also obtain a free copy if you have been denied credit because of information in your credit file or you believe your report contains errors because of fraud. Otherwise, you can obtain a copy for a small fee (usually about $8).
Write a letter to the addresses listed above. Make certain you list your current address, social security number and date of birth. You may also include a copy of your social security card or drivers license showing your current address.
TIP: Some credit reporting companies will automatically reject your request and send you a form requesting additional information, for "security purposes."
They will ask for such information as your three previous addresses, your phone number, your employer, etc. This is a "scam" for them to obtain more information to sell to the public.
What Information is on My Credit Report and How Does it Get There?
Your credit report has "headers," which contains information about your addresses (every one they can find), phone numbers (even the unlisted ones), employers, social security number, aliases and date of birth. This information is usually reported by banks and credit card companies that report to the credit bureaus. Some information comes from public records.
TIP: Don't give your unlisted address or phone number to your credit card companies or it will end up on your credit file.
Your credit report also contains a history of nearly every charge card, loan or other extension of credit that you ever had. It will show the type of loan (e.g., installment loan or revolving credit), the maximum you can borrow on the account, a history of payments and the amount you currently owe. It will also show information from public records, such as judgments, IRS liens and bankruptcy filings. Some debts are reported by collection agencies, such as unpaid phone, utility and cable TV bills. Your credit report will also show every company that pulled your credit report within the last 2 years (called an "inquiry").
How Long Does information Stay on My Credit Report?
In theory, forever. However, federal law (Fair Credit Reporting Act) requires that any negative remarks be removed upon request after 7 years (except for bankruptcy filing, which may remain for 10 years). If you don't ask, it won't go away.
How Do I Get Information Removed From My Credit Report?
You will find some information that is just plain wrong. Accounts that are not yours, judgments against people with similar names and duplicate items are very common. Some items are more subtle, such as the fact that a debt is listed as still unpaid when in fact is was discharged in your bankruptcy. Ask the credit bureau in writing to re-investigate the information. Under federal law, the bureau must reinvestigate and report back within 30 days. In some states, the law requires a shorter time period. If the bureau does not report back within 30 days, the item must be removed.
TIP: Send your letter by certified mail, return receipt requested.
If you do not get results within the time period specified by your state law or the F.C.R.A., you can write a sterner letter threatening to sue under state or federal law. You can also try to contact the creditor directly. Keep in mind that a creditor may also be liable for reporting wrong information. Before jumping into court, try contacting your regional Federal Trade Commission office and your state Attorney General's Consumer Fraud Department.
How Do I Get Negative Things Removed From My Credit Report?
If you have "bad" items, such as late payments, charge-offs, judgments and a bankruptcy, the credit bureaus can legally report this information. However, if the information is stated in an incorrect or misleading format, you can still ask the bureaus to reinvestigate the information. Sometimes you will get lucky and the bureau does not report back within 30 days. In this event, the information must be removed.
TIP: Do not be too specific with your request.
For example, if a bureau reports that you had a judgment against you and it was paid, do not volunteer that information (a judgment rendered and paid is still worse than no judgment at all). Simply state that the information is incomplete and request that it be re-investigated. In some cases, it is less work for the credit bureau to remove the item than to re-check it.
What Things Affect My Credit?
Credit reports are based on a computer model unknown to the general public (called a "FICO" score). However, it is known that certain things tend to improve your score, such as:
Installment loans (e.g., home mortgage) that are paid on time
A few open credit lines with low balances
A history of living at the same address
Owning a home
Beyond the obvious late payments, judgments and bankruptcy, there are certain subtle things that lower your score, such as:
Too many revolving credit card accounts
Too many inquiries
High balances on credit cards
How Can I Improve My Credit?
If you do not have late payments, but want to improve your credit score, you should:
Stay away from multiple department store cards - too many open accounts
Bring a copy of your credit report when shopping for a loan - car dealers may run your credit a dozen times in one day of shopping leaving damaging "inquiries."
Separate your credit file from your spouse and remove each other's names from your credit cards; if you have authorization to use your spouse's card, it ends up on your credit file, too.
Can I Get a Loan with Bad Credit?
This depends on the type of loan. Unsecured loans, such as credit cards and bank "signature" loans usually require a good credit history. Secured loans, such as home mortgages and car loans are a bit more flexible. Lenders are more aggressive and will take larger risks when the loan is secured by collateral. The lender may require a larger down payment and charge a higher interest rate for the risk of lending to an individual with poor credit.
I Don't Like Credit Card Debt - Should I Pay Them Off and Cancel Them?
NEVER! A person with no credit at all is worse off than a person with a bad credit history. You may think that credit cards are evil, but you may not be able to get a phone, a job or even a utility account with a poor credit score. A person with an empty credit file looks somewhere between "suspicious" and "scary" to a company inquiring about your credit. Have a credit card or two, and use them once or twice a year, even if it is just to fill up your gas tank.
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Author's Biography
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real estate since 1990, having been involved in over 600 transactions. He has appeared as a guest on numerous radio and television talk shows including CNBC Power Lunch. He has been featured in Who's Who in American Business, Money Magazine, the Los Angeles Times and the Denver Business Journal. William Bronchick has served as President of the Colorado Association of Real Estate Investors since 1996.
