Many folks believe that once you file bankruptcy, you’ll never obtain credit, or have to wait 10 years before you can borrow money again. This article will give you an overview of why these notions aren’t true.

Can you get credit after your bankruptcy discharge?

Yes, in fact many clients report getting credit card offers in the mail shortly after they file. However, the interest rates won’t be as favorable and the credit limits should be lower than what many borrows experienced in the last decade.

However, ask yourself why you need credit to begin with. You should focus on how to accumulate any leftover income in the form of savings or investments. I advise my clients to start saving enough money in the bank to cover their basic needs for three or four months before even considering borrowing any money, for any reason.

Will I be able to purchase a house after a bankruptcy discharge?

Yes. Most lending programs and data we’ve seen suggest that you can qualify for a home mortgage within 18 to 24 months after a bankruptcy discharge. However, your chances are improved if you have a stable income, a down payment, and little or no other debts. Again, bankruptcy helps by eliminating the very debt that may have jeopardized your chances for getting a home mortgage, had you applied before filing bankruptcy.

Is my credit record ruined by filing bankruptcy?

Your ability to borrow money, bankruptcy or no, has less to do with a credit score than your overall solvency. The more important question most lenders ask in our new economy is: does the borrower have more assets and income than debt?

Your debt-to-income ratio actually improves in most cases after filing bankruptcy which assists your overall credit profile. The bankruptcy event will remain on your credit for up to 10 years, but it isn’t the only factor that establishes your credit worthiness.

However, some lenders who are unfamiliar with bankruptcy may make a negative judgment about your application for credit.

What should I look out for on my credit report after my bankruptcy discharge?

The debts you listed in your bankruptcy will still remain on your credit report. Your bankruptcy should be listed, too, which will alert potential lenders that all discharged debt listed on your credit report is no longer legally enforceable. In plain language: your credit report should prove that your bankruptcy wiped out the legal claims of your old creditors, and that you have less debt than before you filed bankruptcy.

Our office recommends that you don’t use your annual free credit report to assist with the filing of bankruptcy, but to save the free annual credit report to clean up any errors on your credit report that may arise after you receive your bankruptcy discharge. I would allow at least a couple of months to pass before expecting the credit reports to catch up with the bankruptcy discharge.

Feel free to review a Summary of the Fair Credit Reporting Act to understand your rights when it comes to credit reporting.

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I hope to present a series of articles that will address some of the common questions and circumstances that Wisconsin families face as we head into 2010. Experts disagree as to whether the economy will turn around, but until it does, families are asking themselves questions they never dreamed of.

I’ll begin the series with what I see as the most important issue facing Wisconsin families: foreclosure.

Topic: Foreclosure

Our Wausau office receives the following question at least once every other week:

Question: We already know we aren’t keeping the house and we can’t afford to make any more payments toward the mortgage. How much time will we have to stay in the house until we get kicked out?

Before lawyers can answer that question, it is always a good idea to explain exactly where you are in the process.

Foreclosure Process (Ultra Short Version)

1. Breach Letter. A certified letter will arrive warning you of their intent to foreclose and they will invite you to pay to get current, “or else.” (The “else” follows)
2. Summons and Complaint. Handled like any other civil case. Always file an Answer and have an experienced attorney look for all possible defenses to your case. RESPA, TILA, HOEPA and other consumer protection laws can help, especially if your mortgage originated in the era of ‘fast and loose’ lending.
3. Judgment. Failure to file an answer, or a successful defense, may result in a judgment for the mortgagor.
4. Publication. There is a time period established by statute that requires publication of the foreclosure sale.
5. Sale. This is your last chance to find funds to buy the house. It is rare, but some folks have been able to save their home at the foreclosure sale.
6. Confirmation. Once the sale is complete, the judge reviews the paperwork to see if all the statutes were followed concerning the foreclosure, publication, notice and sale.
7. Deed. The deed is transferred to the highest bidder at the sale (which is the bank in a vast majority of cases.)
8. Eviction. Once the deed is transferred, the successful bidder now has the option of evicting anyone who remains in the home.

I hope you can see that the foreclosure process does not happen overnight. The stories you may hear of couples living in foreclosed homes for over a year, are likely true. After all, some banks may have trouble selling the homes they repurchased in foreclosure and would rather have folks in the house keeping the pipes warm and tending the property.

Timing Depends on Facts

Real Estate Foreclosure is governed by Chapter 846 of the Wisconsin Statutes. The statutes specify how much time must elapse before certain actions can be taken during foreclosure. For residential property, the timing of the foreclosure depends on one of the following three fact categories:

1) House is abandoned. (Two month redemption period)
2) House is occupied and the lender does not seek to sue the homeowner for money during the foreclosure (Six month redemption period)
3) House is occupied and the lender wants to sue the homeowner for money during the foreclosure (One year redemption period)

The redemption period is the time from judgment (Step 3, above) to sale (Step 5, above.) The law encourages lenders who wish to have a quick return of the property, to forgo suing the homeowner for money damages (deficiency.) The law also encourages folks who are faced with a foreclosure not to abandon the house.

The Sale, Confirmation and Eviction

Once sold, the Sheriff has up to 10 days to report the sale, and the foreclosure attorneys must schedule a hearing with the court to confirm the sale, and must allow at least 5 days of notice to all parties in interest prior to said hearing. Don’t forget that an eviction action is a separate proceeding with it’s own time line. The fastest evictions are in the range of two to three weeks, if all the hearings, notices and service fall in place.

Commencement of the Case Depends on Contract

The commencement of the case is governed by the actual terms of the mortgage and note, and when followed, certain consumer protection statutes. Most contracts allow a cure period before a lawsuit may be commenced, and the time line from the drafting of a complaint to getting a summary judgment can vary by jurisdiction and lender practice. Filing an answer can slow down the process for several months, especially if there are merits and the case is tried. However, using an answer as a mere delay tactic can incur further costs and fees under some circumstances if the lender is willing to pursue them.

But don’t forget: ALWAYS FILE AN ANSWER TO A FORECLOSURE COMPLAINT.

Conclusion

Thus a conservative answer to how long you have until they take the house in foreclosure, is:

Answer: It depends on whether you file an answer, which redemption period applies, and how aggressively the lender pursues the property.

For most Wisconsin residents who are living in the home, and who will not be sued for money damages, the answer is at least seven months or more from the time you are sued.

If you take nothing else of value from this article, take this: you probably have more time than you think. Don’t fall victim to foreclosure rescue scams. The Wisconsin State Library has a wonderful resource page to help answer basic questions, including an article on how to answer your foreclosure complaint.

Gaining the advice of an attorney is critical, and you should always know your options before making a decision on how to handle the foreclosure, especially when you think you don’t have any options left. We charge a flat minimal fee for all consultations concerning foreclosure lawsuits. Call us today at 715-842-2500 to schedule a consultation.

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There is good news for those contemplating bankruptcy in Wisconsin. The exemptions for bankruptcy filers in Wisconsin have changed favorably, especially for those who seek to retain more value in their primary residence.

The biggest surprise is clearly the increase of the homestead exemption, especially for married couples, who were limited under the old law to preserve $40,000 in their homestead. A married couple can now exempt up to $150,000 in their residence, provided the household qualifies for the exemption.

2009 Senate Bill 259 is set to publish on December 15, 2009, which will become effective on December 16, 2009. The exemptions are set to change as follows:

Consumer Goods

Increased from $5,000 to $12,000

Motor Vehicles

Increased from $1,200 to $4,000

Personal Injury Awards

Increased from $25,000 to $50,000.

Depository Accounts

Increased from $1,000 to $5,000

Qualified Homestead

Increased from $40,000 per household to $75,000 per spouse.

For business debtors and consumer debtors who have businesses:

Equipment, Inventory, Farm Products, Professional Business Books

Increased from $7,500 to $15,000

*What is an exemption, anyway?”

An exemption describes what a bankruptcy filer can keep when filing a liquidation case, such as a Chapter 7 bankruptcy. For example, if a Wisconsin bankruptcy filer owns an automobile worth less than $4,000, the new exemption law allows you to keep the vehicle. Under the old law, you could only keep vehicles that did not exceed a value of of $1,200.

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Music not quite as catchy, but it’s nice to know that the FTC is making folks aware that the only place to get a truly free credit report is through annualcreditreport.com

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The trend for families to combine incomes and live under a single roof is rising in certain areas of the country and the financial realities for some people require that they move ‘back home.’ The latest change in the bankruptcy law requires a ‘means test’ to be performed for all consumer debtors seeking relief under the bankruptcy code. The general purpose of the means test is to limit the number of debtors who can file a Chapter 7 bankruptcy, which requires that your income be lower than a certain value determined by the household median income of the county where you reside.

The question we receive is: how do I calculate the means test if I live at home with my parents?

The answer: your parents income will be considered in the “means test” to the extent that they contribute to your living expenses.

The official language is that your current monthly income “includes any amount paid by any entity other than a debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents.” 11 U.S.C. 101 Section 101(10A)(B).

Your current monthly income “includes any amount paid by any entity other than a debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents.”

What the trustee really wants to know is if you have any disposable income. If you are living at home, expense free, and pull a paycheck for $1,000.00 month, the argument will be that you have $1,000.00 per month that can be paid towards creditors. The expenses regularly paid by your parents would be added to your current monthly income for the purpose of the means test.

The answer applies to all living arrangements outside of marriage, as defined by the U.S. Bankruptcy laws.

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Stock answer: no, and I do not advise that you reaffirm a credit card after filing bankruptcy. You’ll get an offer for new credit cards anyway.

What people are usually wondering when asking this question: should I keep a credit card for emergencies and to pay certain bills after a bankruptcy so that I can “keep good credit” with that particular credit card?

You must list all credit cards that you carry a balance with. Failure to do so can be constituted as perjury, which in turn may lead to a denial of your bankruptcy discharge, or federal criminal charges.

You are not required to report ‘zero balance’ creditors on your bankruptcy. However, if you’ve recently made payments to get it down to zero, you can you expect a challenge from the trustee and potentially land in some hot soup. Many credit cards may find out about your bankruptcy and cancel the card anyway, even if your balance is zero.

Most credit card companies will allow you to keep your credit card after bankruptcy if you agree to enter into a new agreement, signed after the bankruptcy filing (called a “reaffirmation agreement.”)

Rebuild your credit without credit cards

It’s actually tougher to rebuild your credit using credit cards, especially ones you reaffirm after filing bankruptcy.

Let’s say that after you file bankruptcy, the credit card approaches you to reaffirm the debt, which is $3,000.00, on the promise that you’ll ‘rebuild’ your credit more quickly. Let’s also say that you will be offered a card with a low-level balance within months of your bankruptcy discharge (very likely.) Why would you pay $3,000.00 for the benefit of having revolving credit when you’ll be offered the same opportunity to ‘rebuild credit’ anyway? In other words, that $3,000.00 is essentially an annual fee for keeping the card.

Keeping your credit card debt actually hurts your credit because it reduces the positive effects that a bankruptcy has on your debt to income ratio: the more debt you keep, the worse your ‘fresh start’ looks via the credit score.

I do not advise using credit cards past bankruptcy. You can rebuild your FICO score using a good financial plan, and by carrying short term loans through a bank that you know you can quickly repay.

Credit Cards No-no’s Prior to Filing Bankruptcy

Never run up lots of credit card debt in the month or two prior to filing for bankruptcy.

Never open up a new credit card.

Never try to pay your ‘favorite’ card off in hopes to keep it.

Never use money from friends or family to pay off your ‘favorite’ card to keep it.

Never sign a reaffirmation agreement for your credit cards.

Think twice before believing that you can ’save your credit’ after a bankruptcy through reaffirmation.

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How many of you are living the formula: ostrich + sand, when facing your personal debt?

How many of you check the caller ID every time the phone rings, and let in continue to ring if it is a 1-800 number, or “unavailable”?

How many of you dread opening up your mailbox?

If these rituals sound familiar to you, we’re here to help. Doing nothing about overwhelming debt is not advised and only makes your financial problems worse. Follow these three rules if you find yourself struggling with debt until you gain the advice of a bankruptcy professional:

Rule 1- Don’t throw away your mail: Approaching the mailbox with dread, only to see a stack of mail from creditors, is not a wonderful thing. Your greatest ally in your personal war against debt, is time. The only way you can buy more time is to prioritize which bills need be addressed before you find yourself answering the door to a process server. Notice that I used the word “address” instead of “pay.”

Rule 2- Don’t pay bills according to who calls you the most: As a general rule, bills should be paid in the following order: 1) Food, 2) shelter, 3) utilities, 4) loans secured by vehicles, 5) child support/taxes, 6) loans secured by other property, 7) unsecured debt, including credit card debt and medical bills. There are times when child support and taxes take on a greater priority. The people who call you most are probably #7 on that list. They are calling you for a very good reason – to move themselves further up that list in your mind! The timing of paying student loans varies from case to case.

Rule 3 – Answer all lawsuits, and show up in court: Failing to answer lawsuits, or showing up in court, only shortens the amount of time you have in addressing the debt. You may have valid defenses which could eliminate the debt entirely. There are scores of companies that attempt to collect ‘zombie’ debt, that is, debt that has expired according to the statute of limitations. Don’t give them a free pass, especially if they intend to garnish your wages.

You need to know your options before you open your checkbook to pay the bills. Contact my Wausau bankruptcy office to set up a free consultation concerning your debts. We’ve helped many “ostriches” pull their head out of the sand, and breathe easier.

Bankruptcy is not for everyone, but it could work for you. The federal bankruptcy code is designed to afford honest debtors a chance at a fresh start in their finances.

Personal bankruptcy is the opposite of “doing nothing” about your bills. The faster you can regain financial balance, the better!

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The Fourth of July weekend was slow enough to allow my reflection on how to tie in our nation’s anniversary with this bankruptcy blog.

The first thing I wondered: if the US walked into my Wausau office (figuratively, of course) seeking bankruptcy advice, what would its debt history look like? I found a website called Treasury Direct that tracks such data and a quick review of the figures confirm the whisperings I heard that our nation has always carried debt.

The healthiest our nation’s outstanding debt was during the Andrew Jackson presidency, when he made true on his threat: “The Bank is trying to kill me but I will kill it.” President Jackson even explained why he killed it, convinced that he had done his duty to the American people in protecting the bank from foreign investors by closing it down.

According to Treasury Direct, our lowest outstanding budget was in 1835, when it fell to a whopping $33,733.05 as a consequence of President Jackson’s bankicide. A recession soon followed, complicating his already controversial legacy, and our nation’s outstanding debt has ballooned many times over since.

I’ll skip a discourse on how the budget grew and the history behind the existing Bankruptcy Code and instead retell how the Supreme Court defines the role of bankruptcy:

“It gives to the honest but unfortunate debtor…a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” — Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934).

Bankruptcy offers a way to rebound from past mistakes, and provides a limited safety net for those who seek to the growing risk of private enterprise.

Bankruptcy is about forgiveness. This last Fourth of July incorporates an element of forgiveness for some of us. I choose to love our country despite all its past mistakes and current earmarks of corruption.

Bankruptcy can be a reset the button that restarts our American Dream, whatever that may entail.

One irony in my contemplation was that our nation doesn’t have the same power that individuals do under the Bankruptcy Code to get a fresh start, short of inviting another Andrew Jackson into the government to shut the whole thing down.

The second irony is the contingent in Washington that looks down upon the Bankruptcy Code and implies that debtors who seek its relief are somehow dishonest or immoral for seeking a fresh start. “Shame on you for discharging debt,” say the people creating it for our country at breakneck speeds.

God bless America – and the hypocrites who run it.

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Crumbs have finally landed from the TARP handouts for the consumer-taxpayer, and a cap on credit card rates was soundly defeated using lobby dollars of the credit card industry.

My assessment after reading the entirety of H.R. 627: a step in the right direction to placate the growing ranks of consumers who desperately need relief from the outrageous usury practices of the credit card industry, but nowhere near as effective as advertised.

The term “Little People” is a term of art, and used affectionately. I have no idea how tall credit card users are these days, but I count anybody outside the immediate payouts of TARP funds to be ‘little’ in comparison. They’re my people: the people I work for, and grew up with.

The Good

1. Increased disclosures to consumers concerning credit card terms
2. Elimination of double-cycle billing
3. Measures to counter over-the-limit fees
4. Credit card bills would be paid on the same day each month
5. Restrictions on increasing charges and rates for newly issued cards
6. Requiring AnnualCreditReport.com to be advertised through credit report providers*
7. Restrictions on ‘ninja fees’ for gift cards
8. FTC will oversee efficiency of how credit cards are closed for estates

The Eh

1. Companies can lower interest rates for consumers using review process established by credit card companies

Concern: Effective 15 months from Obama’s signature, and we haven’t seen details of review process that will be established by credit card companies and approved by Board

2. Those under 21 need a cosigner or must assert eligibility through application

Concern: no measures proposed to double check accuracy of application

3. Colleges should restrict access to credit cards on campuses

Concern: no teeth. They should get rid of the bowl system, too.

4. Studies authorized to assess PIN security, cross-marketing of credit cards and security for small business accounts

Concern: Fluff. So glad we need Congress to pass laws to look into things.

5. Congress will look into shifting credit card fees at point of sale (interchange fees)

Concern: Congress effectively tabled the issue. Learn about it here.

6. The ability of the consumer to afford a credit card will be considered

Concern: This could mean less cards issued – and more depsperate measures taken by consumers to qualify for them.

The Ugly

1. Penalties for credit card companies aren’t severe enough if they violate the Act ($500-$5,000 per violation in some cases)
2. Effective date of Bill on most measures won’t occur for another 9 months
3. The practice of usury at the high interest rates consumers suffer from for rates and penalties, will continue

And The Interesting

1. Stored Values of credit cards and purchasing information will be regulated, in part to help us fight terrorism (allegedly)
2. I can conceal a loaded weapon in national parks like GW said I could when he left office

*I like this one. I’ll ask my clients if they know where to get a free credit report and a good percentage respond “FreeCreditReport.com” (which isn’t free.)

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President Obama spoke about credit card reform while at a town hall meeting in New Mexico yesterday, urging Congress to pass a bill by Memorial Day. Consumer groups are mustering as much support as they can to combat the influence of the credit card lobby to water down the current legislation. I went ahead and submitted my support to my local Senators in support of S. 414 and urge you to do the same.

The Consumerist has put together some bullet points highlighting the key provisions of the proposed legislation.

Creditcardreform.org has invested in a toll free number where you can call your senator to urge the passing of the bill.

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