Post-Bankruptcy Survival: Stay-At-Home Spouses Could Be Denied Credit-Image via Wikipedia

The Federal Reserve is coming under fire after it proposed that credit card companies consider individual income and not household income when deciding whether they will issue a credit card. Many protested saying that married women (and some men) who don’t work outside the home would be unfairly penalized by the law.  The Fed responded by saying that the nonworking spouse could get a credit card if the working spouse co-signed. This can be especially damaging for married post-bankruptcy debtors who don’t earn an income in a job outside of their home. After bankruptcy, all debtors need to rebuild their credit, and that includes work-at-home spouses.

While it is understandable that the Federal Reserve wants to make sure that credit cards are only being issued to individuals who have an income and can repay the debt.  The Federal Reserve has failed to understand that the income of a working spouse is also the income of a non-working spouse.  Unfortunately, the Federal Reserve has not shown any signs of changing its position.  So what should a stay-at-home spouse do after they exit bankruptcy?  Let’s take a look at a few strategies:

1. The post-bankruptcy debtor who does not work outside of the home could apply for a secured credit card in their name and then slowly earn the right to have it converted to an unsecured credit card.
2. The stay-at-home spouse could ask for their spouse to co-sign their unsecured credit card after they exit bankruptcy.
3. The stay-at-home spouse may want to consider starting an at-home business or even receiving an “official” salary from their spouse as a way of securing their own line of credit after bankruptcy.

(source: http://www.businessweek.com/magazine/content/11_10/b4218030561940.htm)

Image via Wikipedia

Savings has grown for individuals in this country, so banks are now seeing themselves flush with deposits. What do those fat deposits mean for debtors? More credit availability. Consumers are reporting that the ability to get credit, even with a flawed credit history seems to be easier, especially in the auto lending industry.

Even car buyers with tarnished credit histories are getting financing, in some cases without making a down payment. More than 859,000 new cars were sold to consumers with a so-called subprime credit rating in 2010, a nearly 60 percent increase from the year before, according to CNW Marketing Research.

A sixty percent increase is huge.  But for those debtors trying to reestablish their credit after bankruptcy, there are still issues they must keep a look out for:

1. What you see is not always what you get.  A post-bankruptcy debtor purchasing a vehicle or applying for a credit card needs to read the fine print.  Are there fees, interest rate hikes or other variables that could make this credit deal more expensive than it seems?
2. Some lenders are still dealing in funny numbers to get you qualified.  Post-bankruptcy debtors must remember that the lending industry is in the business of making money and the only way they can do that is if they have customers.  During the recession the number of customers went down, not just because there was a credit crunch; but because many debtors began to turn down offers for credit out of their own cautiousness.  Now, to get those customers back, some lenders may be willing to have you (the post-bankruptcy debtor) take on just a little more debt than you can really afford. So make sure you do the numbers yourself and don’t stretch your finances to pay for debt.
3. While it is mostly the auto lending industry showing a huge upswing in the granting of sub-prime credit, post-bankruptcy debtors need to watch this in the housing market too. It may be tempting to take on a sub-prime mortgage just to “get into” a home. Don’t do it.  A mortgage is a huge, long-term responsibility, and post-bankruptcy debtors who sign onto toxic mortgages are putting their homes and finances in jeopardy.

(source: http://www.nytimes.com/2011/02/28/business/28autos.html?_r=1&src=busln)

Three Signs That You Need Bankruptcy Relief-Image via Wikipedia

In 2010, more than 1.5 million Americans filed bankruptcy, that’s an increase of 9 percent from 2009 and the highest number of bankruptcy filings since the controversial bankruptcy reform law was passed in 2005.  But surprisingly many experts believe that there are even more Americans out there who need to file bankruptcy but either are avoiding it or don’t understand that they have a real need for bankruptcy relief.  Does that sound like you?  Let’s take a look at three signs that you may need bankruptcy relief.

1. Your house is facing foreclosure and you can’t do anything about it because you’re money is tied up paying other debts.   Many debtors who file bankruptcy do so because they want to save their home for foreclosure.  Bankruptcy allows them to discharge other unsecured debts such as medical bills and credit card debts so that they can put more of their money towards paying the mortgage.
2. You are struggling to pay medical debts that you owe and which your insurance provider won’t cover.  It’s an unfortunate reality, but many Americans are being financially ruined by medical debt which they simply cannot pay.  Some of them don’t understand that bankruptcy can discharge all medical debt and give them a fresh financial start.
3. You are being sued by creditors and/or your wages are being garnished. Getting in a legal entanglement with creditors is a disaster which bankruptcy can handle. Once a debtor files bankruptcy, the automatic stay stops creditors’ legal proceedings against the debtor. This means that if a creditor is suing the debtor or garnishing their wages, after the bankruptcy is filed they must cease immediately.

(source: http://thedowneypatriot.com/bookmark/11594996-Choosing-the-right-type-of-bankruptcy-for-you)

Post-Bankruptcy Survival: Save For Retirement vs. Paying Off Debt-Image via Wikipedia

Many creditors would have you believe that retirement savings should be completely postponed if you have any outstanding debt. But this line of reasoning defies logic. Post-bankruptcy debtors who still have debts to pay after their discharge need to ask themselves a consider a few things so that they can both prepare for retirement, reduce and eventually eliminate their debt obligations.

1. Post-bankruptcy debtors should consider their age when deciding how much they should commit to retirement savings as opposed to debt repayment. Younger debtors have more time to save for retirement while older debtors will need to take an aggressive retirement savings approach after their bankruptcy discharge. Post-bankruptcy debtors don’t want to take the risk that they won’t have enough for retirement a situation that could force them to take on even more debt  in their elderly years.
2. Post-bankruptcy debtors need to make sure that they have a sufficient emergency fund.  We see what’s happening in this recession with long-term employment. Many debtors remaining jobless for a year or longer. That’s why post-bankruptcy debtors should create an emergency fund that’s able to cover at least 6 months of their living expenses before committing lots of money to retirement savings or to major debt repayment. Once again, failure to have a healthy emergency fund could be financial risky when the post-bankruptcy debtor is faced with a crisis.
3. Post-bankruptcy debtors should make sure that they are maximizing their employer’s matching plan for any 401k fund they have while simultaneously paying off debt.  It may be smarter to literally double your money in an employer matching plan than to spend all of your cash on paying down debt quickly as possible.

(source: http://moneywatch.bnet.com/retirement-planning/blog/money-life/should-you-save-for-retirement-or-pay-off-credit-card-debt/3063/?tag=content;col1)

Post-Bankruptcy Survival: Winning The Credit Card Game-Image via Wikipedia

One of the battles of a bankruptcy debtor’s post-discharge life is rebuilding their credit.  One of the tools of doing this is using credit cards strategically to gain an advantage in the credit rating system.  But how does a post-bankruptcy debtor win the credit card game, and is it even possible?

• Post-bankruptcy debtors must realize that dealing with the credit card industry is much like a game of musical chairs.  Just when you think you got it all covered, the music stops or suddenly changes.  So is the case with credit card companies who are making subtle and not so subtle changes to their terms which are designed to get as much money as possible out of you—the debtor.  That said, smart post-bankruptcy debtors will remain on high alert for changes and be prepared to react to those changes immediately so that they can avoid financial problems. Shopping around for the credit card with the lowest fees and best interest rates is a good starting point.
• Post-bankruptcy debtors must learn to use their credit cards; but to use them responsibly.  More credit card companies are becoming aggressive about cancelling the accounts of credit card consumers who do not use their credit cards.  This is the tricky part of maintaining your credit rating after bankruptcy. Human nature says that if you start to use the credit card you eventually begin to overspend. You’ve seen the studies which say that people who use plastic over cash spend 30 percent more.  Well, it’s true. Post-bankruptcy debtors must make it habit to use their credit card on a regular basis, while developing the discipline to pay it off before the balance accrues interest.

(source: http://moneywatch.bnet.com/saving-money/blog/devil-details/5-credit-card-tricks-for-2011/4081/)

Four Reasons Why Filing Pro Se In Bankruptcy Could Be Costly-Image by Nemo's great uncle via Flickr

As the recession drags on and more debtors turn to bankruptcy for help, many businesses are propping up offering bankruptcy “services” such as online “advice” and forms.  Some are suggesting that debtors skip the expense of working with a bankruptcy attorney and do a DIY bankruptcy filing Pro Se.  However, what they fail to mention that while these pro se debtors may save money in the short-term, the long-term costs of filing bankruptcy without a bankruptcy attorney can be costly. Let’s take a look at how a pro se bankruptcy filing could cost you:

1. Filing bankruptcy has always required the expertise of a professional but after the 2005 bankruptcy reform laws were passed, the process became even more complex.  Just filing the paperwork for bankruptcy is very involved and one mistake could put a debtor at risk for losing their automatic stay protection.
2. Creditors who are looking to squeeze every dime they can out of bankruptcy debtors see pro se filers as easy pickings.  A debtor without a bankruptcy attorney is more likely to have their bankruptcy case and discharge challenged.
3. Bankruptcy law is complex and often changes.  Different rulings by different judges could impact the debtor’s bankruptcy case in a way they cannot foresee unless they constantly stay on top of bankruptcy trends. This lack of knowledge increases the chances of a debtor’s bankruptcy case being dismissed due to debtor mistakes.
4. The bankruptcy trustee will not take responsibility for educating a pro se debtor.  The bankruptcy trustee is there to protect the interests of the creditors and the bankruptcy estate.  For example, if the debtor fails to claim an exemption, the trustee won’t remind them. Pro se debtors have no advocates when they step into bankruptcy without an attorney.

(source: http://www.mortgage11.com/2011/02/filing-bankruptcy-online-with-totally-free-bankruptcy-legal-advice/)

Five Bankruptcy “Discharge Denial” Triggers-Image via Wikipedia

In the recent Chapter 7 bankruptcy case of a relatively affluent couple, one of which is an attorney, the bankruptcy judge denied the discharge of the couple’s debts. What did the couple do to deserve a bankruptcy discharge denial? Let’s take a look at five things that triggered the bankruptcy discharge denial:

1. The couple engaged in improper transfers of estate assets. The couple had filed bankruptcy on several businesses they owned; plus personal bankruptcy.  But in their Chapter 11 bankruptcy cases, they used petty cash in a way that the bankruptcy court deemed improper.  In total they withdrew over $253,000 dollars from the bankruptcy estates of their personal and business cases.
2. The couple made false oaths in connection with their bankruptcy cases. The debtors failed to schedule two life-sized bronze horses, worth $20,000.00, and later hid the horses on the debtor-wife’s sister’s property in a attempt to hide them from the bankruptcy trustee.
3. The debtors refused to comply with lawful bankruptcy court orders. The debtors interfered with the sale of estate assets which had been authorized by the bankruptcy court. They also failed to comply with a bankruptcy court order to turn over non-exempt property.
4. The bankruptcy debtors failed to keep adequate records. The debtors admitted to the bankruptcy court that they made extensive transfers from the estate but failed to document these transfers.
5. The debtors withheld information from the bankruptcy trustee. The debtors failed to provide material documents to the bankruptcy trustee, including records of their extensive jewelry sales, information about their contingency fee interests, and records of their use of estate funds.

(source: http://www.leagle.com/xmlResult.aspx?xmldoc=In%20BCO%2020110217728.xml&docbase=CSLWAR3-2007-CURR)

Credit Card Companies Continue To Abuse Youthful Ignorance-Image via Wikipedia

The CARD Act was suppose to put a lid on the virulent marketing of credit cards to young people but according to some experts, the situation has not improved much. Young people are still in debt with credit cards and credit card companies are coming up with creative ways to bilk the youth of their last penny.

Jim Hawkins, an assistant law professor at the school, found that 76 percent of more than 300 undergraduates surveyed under age 21 had received a credit card offer since the beginning of 2010. There also was little difference in credit card marketing between the freshmen who entered school after the law took effect and the upperclassmen.

What’s more, roughly a third of freshmen already had a credit card, Hawkins’ survey found. One way the students got around the income requirement: Almost one-third used student loan proceeds as part of the income reported to card issuers when they applied.

Income requirements are minimal for the cards because they are based on ability to pay the minimum monthly amount, not the entire balance, Hawkins said. Other loopholes the banks have found include using students’ e-mail addresses or putting offers on Facebook that include gifts if they fill out an application, Hawkins said.

The fact that credit card companies are using Facebook and the rest of the internet to ensnare youth into debt is disgusting.  These companies are clear on the fact that the students don’t have significant income to repay credit card debt. But that’s the point, right? Get the youth and drain them with high interest and fees, this is a credit card industry strategy. The fact that the income requirements are based on the ability to pay the minimum payment and not the balance is almost criminal. We all know that paying only the minimal balance can leave you indebted for years paying thousands of dollars in interest to a credit card company. That was the whole point of the CARD Act, to level the playing field and give Americans the opportunity to get out of debt.  But instead our youth remain at risk. And if you thought that the co-signer requirement would save our youth from credit card debt, you’re wrong.  The CARD Act allows the credit card co-signer to be anyone, as long as they are at least 21 years old.  That means that college students can co-sign each other’s credit card applications and put themselves in a word of financial trouble. Envision a new type of peer pressure where those who want to “fit in” sign onto a several years of debt for “friends.”

(source: http://www.star-telegram.com/2011/02/17/2858645/credit-cards-still-being-marketed.html)

Equitable Subrogation In Bankruptcy Image by Getty Images via @daylife

Under most state laws a business is not allowed to assert an action or claim against someone in another state if it the action/claim arises for a transaction for which they are not properly registered with the state. This often arises in the case where lenders are not licensed to grant home equity loans in a certain state. The law usually states: “A foreign filing entity . . . may not maintain an action, suit, or proceeding in a court of this state . . . on a cause of action that arises out of the transaction of business in this state unless the foreign filing entity is registered in accordance with this chapter.” However, an entity sometimes seeks equitable subrogation, especially in bankruptcy so that they can pursue a claim.

“The doctrine of equitable subrogation has been repeatedly applied to preserve lien rights on homestead property.” “It has been called a legal fiction by which an obligation, extinguished by a payment made by a third person, is treated as still subsisting for the benefit of this third person.”

For example, there are a lot of bankruptcy cases where a bankruptcy debtor is fighting a lien which they say is invalid because the creditor violated the state law.  This is often the case with home equity loans.  The mortgage lender refinances a mortgage and gives a home equity loan to the debtor although the lender is not legally entitled to because they don’t have a license in that particular state.  Once the debtor files bankruptcy, they attempt to invalidate the lien saying that because the lender was not licensed to give home equity loans, the lien is void and that the lender should get no repayment.  However, the bankruptcy court has repeatedly found that while a mortgage lender may have violated the state law by giving a home equity loan, they still are entitled to repayment under equitable subrogation.  The purpose of equitable subrogation is to prevent the unjust enrichment of the debtor who owed the debt.

(source: http://www.leagle.com/xmlResult.aspx?xmldoc=In%20BCO%2020110217729.xml&docbase=CSLWAR3-2007-CURR)