How Bankruptcy Affects Your Credit Score

CREDIT SCORE IMPROVEMENT AFTER BANKRUPTCY

Most people are terrified that their credit will be destroyed if they file bankruptcy. This fortunately is not true. Most people who file bankruptcy have a credit score somewhere in the mid 500’s. The report has many accounts that are in collection and the only chance for these people to clean the slate is to file a Chapter 7 or Chapter 13 bankruptcy and wipe out the debts. Based on many years experience a client whose FICO score is in the mid 500’s will see a relatively quick boost in the score within a year of the filing. The credit report service that we use at Broumas Law Group LLC has a feature that estimates for our bankruptcy clients what the FICO score will be one  year after the Chapter 7 or Chapter 13 bankruptcy is filed. Surprisingly almost every client sees a 30 to 100 FICO score improvement based on that report.

WHAT EFFECT CREDIT SCORE

There are a few clients who arrive at our door with a 700 plus FICO score. These clients tend to come from one of two different groups. The first group, consisting of clients who have suffered a catastrophic life event,  loss of a high paying job, illness, business failure or similar sudden tragedy. These clients are just in a bad place and will most likely see a real loss in their FICO credit score in the short term. The question for people in this group is what the prospect of a quick recovery is before all of their loans are delinquent and start reporting negatively.

As unfortunate as their situation is in many cases a poor credit score is just around the corner. Depending on the magnitude of their obligations it is most likely going to be impossible for these clients to maintain a great credit score. The prospect of filing even if there is a short term drop in the score is still better long term since they should recuperate faster after filing a Chapter 7 or Chapter 13 bankruptcy.

The second groups of clients with a 700 plus FICO score are the clients that are over extended and keep using the credit cards and credit lines to stay current. They often tell me they are “robbing Peter to pay Paul”. For these clients the credit score should be in the 500’s but they desperately try to maintain their credit by becoming more and more in debt. The solution for these clients is simple: they have to cut the credit card cycle, stop buying necessaries like food and gasoline on credit and file bankruptcy. They need to get on a cash basis. I tell them if you cannot afford to pay for it then it does not make much sense to pay 24% more when you add the interest to the price.

BUYING ABILITY AFTER BANKRUPTCY

Although bankruptcy will stay on your record for 10 years, bad credit stays there for 7. If it takes you 5 years to pay off the bill and it stops reporting 7 years after that it will probably be there longer than the bankruptcy.

Clients report a dramatic improvement in their ability to buy cars within months of a filing with a reasonable interest rate. Buying a home, which is impossible if you have many delinquent accounts, is very realistic 3 years after the bankruptcy is over. If you have questions about the effect of bankruptcy on your credit an experience Maryland bankruptcy attorney can help you.

WILL BANKRUPTCY HELP ME IF I AM BEHIND WITH MY GAS AND ELECTRIC BILL

UTILITY BILLS IN BANKRUPTCY

Utilities like the gas or the electric company have special rules that need to be followed when you file bankruptcy in Maryland. Clients in distress often have fallen behind with all the bills even the gas and electric bills. The utility bills often have accumulated to a very significant number because the utilities rarely actually turn off service right away. This is especially true in the winter months when a turn off could be life threatening to the elderly or children. It’s not uncommon to have a client that lost a job come in with a turn off notice with a $3,000 to $5,000 balance after a hard winter.

UTILITY PROTECTION AFTER FILING BANKRUPTCY

Utilities are given special protection under all chapters of the bankruptcy code. Once a bankruptcy is filed they are required to keep the power and the gas on even if they have sent out a termination notice and are about to shut the gas and electric service off. The way the system works once a Chapter 7, Chapter 12, Chapter 13 or Chapter 11 is filed and they have notice of the filing the power company or other utility needs to maintain service. The bill is then generated for the time period before the bankruptcy was filed and a new billing cycle with the post-bankruptcy filing period is opened and started.

The bill for the pre-bankruptcy period is then included in the bankruptcy and either discharged in the Chapter 7 or dealt with in the plan under the other bankruptcy Chapters. While the very large utility bill is in the bankruptcy is in the bankruptcy the Client is not without some significant obligations. First the utility company is entitled to a reasonable security deposit to insure performance with regard to the post bankruptcy filing bill. This needs to be arranged for and paid by the client within 20 days of the bankruptcy filing or the utility company can terminate service. Most utilities will have a standard amount they require for a deposit. Depending on the utility company usually the deposit will be one and a half to two months of the average bill. Some will use a percentage of the yearly bill. Regardless, the amount of the deposit is going to be much less than the original turn off. This deposit is the client’s money, so at some point in the future if the client continues to perform the funds will be reimbursed.

BANKRUPTCY LAWYER CAN HELP WITH TURN OFF NOTICE

If the deposit request is unreasonably high an experienced Maryland Bankruptcy lawyer can help you ask the bankruptcy court for help in a hearing to set a proper deposit. Some of the reasons the utility company might give a very high deposit can be caused by creative and illegal ways a client might have coped with a turn off. In the past I have seen client that broke seals on the meters and turned power back on, connected to another power source and took electric power from neighbors. These acts will cause the utility to give a client a hard time about the security deposit requirements.

Even if the turn off has already happened and the client is in the dark, the utility company is required to turn the power back on once they have notice of the bankruptcy filing. They of course are entitled to the security deposit. It will not happen overnight in many cases especially if the turn off is at the street and not remote. Under those circumstances the sooner the client files the bankruptcy case the sooner he or she will have gas and electric power.

Chapter 7 Bankruptcy for Persons with Above Average Income

ABOVE AVERAGE INCOME BANKRUPTCY REQUIREMENTS

In October of 2005, Bankruptcy laws were changed with a view towards making it harder for people with above median income to file a Chapter 7 case. The law before 2005 did not set any specific income guidelines but it in many ways still restricted people with substantial incomes from discharging their debts in Chapter 7 if after deducting reasonable expenses there were funds left over in the budget. If a client does not fit the income and expense requirements they are not allowed to get a Chapter 7 discharge and if they want relief need to file a Chapter 13 bankruptcy.

CHAPTER 13 BANKRUPTCY WITH HIGH INCOME

To understand the difference between the two most common bankruptcy chapters, a Chapter 7 bankruptcy does not have a payment component. You file the case and if everything is in order you ordinarily will finish the process in three and a half to four months and at the end discharge most debts. Chapter 13 is not a bad alternative; it’s a restructuring with a discharge at the end of the process. Chapter 13 is an income based repayment plan. This means in its simplest form the first test for what must be paid in the Chapter 13 is 100% of all disposable income after normal expenses for the 36 to 60 month plan period. In many cases there is very little money left over in the budget and the client ends up using the Chapter 13 to catch up back mortgage and car payments and taxes. Because there are no additional funds left over in the budget the credit card, medical bills etc. get nothing and are discharged at the end of the plan.

CHAPTER 7 BANKRUPTCY WITH HIGH INCOME

A person with high income who wants a Chapter 7 discharge needs to show that:

1. His or her reasonable expenses do not leave enough money to fund a Chapter 13 plan.
2. The monthly average of all gross income earned in the six months preceding the filing of the bankruptcy is less than the median income for that State of residence.

Once the client goes over the median monthly gross income average the client is restricted to using the arbitrary monthly living expenses permitted in the statute to determine if there is money left to fund a plan.

IRS AND BANKRUPTCY GUIDANCE FOR REASONABLE EXPENSE TEST

Most of the arbitrary expenses that are used in the means test are the same ones the Internal Revenue Service uses to determine a person’s ability to pay. Other expenses are set by the bankruptcy statute. Both the arbitrary timing and arbitrary expenses lead to some absurd results in many cases. A well paid school teacher who does not receive pay in the summer might not pass the means test at the end of the school year but may pass in August when school resumes. A real estate agent who makes most of her commissions in the spring might pass in January. This area is complex and full of issues that require the knowledge of an experienced Maryland Bankruptcy lawyer. Just because the client passes on paper does not mean a high income person will be able to weather the scrutiny that will inevitably be given in a close case.

ATTRIBUTES OF MEANS TEST          

Not only is the timing of the calculation important and arbitrary. Some of the expenses that can help beat the means test are:

1. Very large alimony or child support
2. You owe an enormous tax liability that will not be discharged
3. You have a very high mortgage expense
4. Your children have learning disabilities and you have to pay for private school
5. You have very large car payments

These won’t guaranty that you will pass but they may help get the means test to work.

GET HELP FROM BANKRUPTCY LAWYER WITH MEANS TEST

The expense side also gives rise to some absurd results. The person, who is frugal, buys a small inexpensive car and does not have a loan on that car will get almost no means test deduction for owning that vehicle. The person who bought a $50,000.00 Lexus at 24% interest and still has 50, $850.00 per month payments gets to deduct the standard ownership allowance for the car plus the car payment. Similarly, someone with a $1,000,000.00 mortgage who pays a $4,500.00 a month payment gets to deduct that payment. The homeowner with a normal $250,000.00 house gets the IRS standard allowance. Despite passing on paper however this is an area where an experienced bankruptcy lawyer will make a difference. Even if you pass the requirements on paper there will be many questions that need to be addressed before you will make it through the process. These high income cases are not simple Chapter 7 cases. They require a great deal of experience and skill before and after they are filed.

What to Do if you Already Filed a Chapter 7 Case and Need Help Again.

BANKRUPTCY AFTER BANKRUPTCY

You are able to receive a Chapter 7 discharge once every 8 years. This time period is calculated from date of filing the first case to the date the second case is filed.  Unfortunately life does not always follow this schedule. Sickness, job loss, accidents unexpected events can mean having mounting debt problems even after bankruptcy.  The solution could be a Chapter 13 bankruptcy.  Chapter 13 allows you to get a discharge within 4 years of a Chapter 7 case shortening the time by 4 years. While the Chapter 13 is a payment plan in many instances the income situation is similar to what it was when the original Chapter 7 case was filed meaning there is little if any money left over after the client pays his normal living expenses.

In that situation a Chapter 13 case could be approved with a minimal monthly payment based on relative low disposable income. The way the minimal payment Chapter 13 would work is to pay creditors a small token payment every month for 36 months based on the few dollars the client has left after he pays his living expenses. At the end of the 36 month payment plan the remaining balance of the debt is discharged just like it was in the previous chapter 7 case.

GET HELP FROM EXPERIENCED BANKRUPTCY LAWYER WHEN YOU NEED TO FILE BANKRUPTCY AGAIN

If the unexpected life problem happens before the 4 year anniversary of the filing of the Chapter 7 case the Chapter 13 still can be used to stop collection by the creditors it just will not allow the debt that remains unpaid to be discharged. An experienced bankruptcy lawyer can help you with your debt problems even if you have already filed a prior bankruptcy. These actions require careful planning and understanding of the limitations you have which the bankruptcy lawyer at Broumas Law Group LLC can help you with.

Another place where a Chapter 13 which is filed after a Chapter 7 case can provide some relief is in the situation where the client files the Chapter 7 case discharges the debt and then after that becomes delinquent on her mortgage. This is often referred to as a Chapter 20. While “Chapter 20” does not exist officially under proper circumstances, where there is no bad faith, a Chapter 13 filed after a Chapter 7 (the Chapter 20) can allow you to save your home by catching up the arrears on the mortgage over 5 years even after you filed a previous Chapter 7 case. This is definitely where you want to have an experienced bankruptcy lawyer to help evaluate whether this sort of relief is available to you.

VERY AFFORDABLE PRICE FOR CHAPTER 7 BANKRUPTCY FROM A VERY EXPERIENCED LAWYER IN MARYLAND.

AFFORDABLE BANKRUPTCY SERVICE

Our Maryland Bankruptcy Lawyer believes that bankruptcy legal services should be affordable, efficient and the quality of the services should be excellent.

SIMPLE CHAPTER 7 BANKRUPTCY

At Broumas Law Group LLC, the pricing for our simple Chapter 7 bankruptcy cases reflects that policy. We Charge $999 for what we call a simple Chapter 7 case for legal fees. This means that most of our clients will be paying $999 for the services by our bankruptcy lawyer and staff.

MORE COMPLICATED CHAPTER 7 BANKRUPTCY

Some cases are more involved than the everyday case. For example a case with multiple properties, a business case, a case where the income is very high and significant time and effort will be needed to analyze and deal with complications cause by the means test and other income related issues. Those cases will require substantially more time that a routine case. When you meet with our lawyer for the first time he will be able to tell you if your case is unusual and will require additional expense to be filed. The more complicated cases are usually cases that arise when the client has a more complicated business, larger income and so most often the client is also able to afford the extra service the client needs to get through the process.

MOST CLIENTS QUALIFY FOR A SIMPLE CHAPTER 7 BANKRUPTCY

I tell clients if you own a house, a couple of cars, a cat and a dog, don’t have a high income, have not defrauded anyone, you most likely will be paying $999 for a Chapter 7 case at Broumas Law Group LLC.
At Broumas Law Group LLC our practice is almost exclusively  limited to all aspects of bankruptcy.  At Broumas Law Group LLC you get excellent service from bankruptcy lawyer with over 35 years of bankruptcy experience for an extremely low price of $999 for Chapter 7 cases.

LOST YOUR DRIVER’S LICENSE? BANKRUPTCY COULD BE THE SOLUTION TO A BIG PROBLEM.

BANKRUPTCY RELIEF IF YOU LOST A DRIVER LICENSE

Maryland State and many other states will suspend your driving privileges if you have an accident, are not insured and the state has to pay under the State uninsured motorist insurance.

This is one area where bankruptcy can provide very significant relief. Section 525 of the Bankruptcy Code prohibits all governmental units from discriminating against someone who has filed bankruptcy or has not paid a dischargeable debt. This includes a prohibition from refusing to issue a license or a permit.

GET HELP FROM BANKRUPTCY ATTORNEY TO REMOVE MVA FLAGS

Under this section if you have been in an automobile accident while your insurance lapsed an experienced Bankruptcy attorney can help you with the process of having the flags removed by the Motor Vehicle Administration and force the State to issue a license to drive. Another place that you can benefit is when you owe the State taxes and have had your license suspended.

Once again in either Chapter 7 or Chapter 13 an experienced bankruptcy lawyer can help you get your driving privileges back. The Relief in Chapter 7 will only be temporary however unless the taxes are able to be discharged.

You should consult a bankruptcy attorney to help you determine whether this relief will be available and under what circumstances it will be permanent. A bankruptcy will not resolve a Debtors problems if they have a license that is suspended because of fines or violations.  Those are not going to be discharged and are not subject to the protection in Section 525 of the bankruptcy code.

Business Bankruptcy and Insolvency

DETERMINE IF THE BUSINESS IS INSOLVENT

When a business is in trouble the process of determining the best course of action is complicated and confusing. The business most often has suffered from a lack of administrative attention in addition to having cash flow problems. The accounting is often in disarray and the owners are operating on a day to day basis often without a plan. The first step is to determine if the business can be salvaged or is hopelessly insolvent. This is an exercise for the business owner. Without a business plan and some objective prospect for the situation to improve there is little chance things will get better. A business bankruptcy can help by restructuring secured and unsecured debt and can give the business a break from collection activity to try to reorganize.

CHALLENGES RUNNING BUSINESS

It is common for the business owner to make serious mistakes while trying to keep his business from failing. Using sales tax collections that should be remitted to the state. Using payroll taxes that are withheld from employees. These are just some of the challenges that need to be avoided especially since taking these extreme measures can result in personal liability for those who are in charge of the business. In most cases with a small business the owners are also directly affected by the financial woes of the company. Facing the potential for liability of personal guarantees of the business debt makes the decisions regarding the business more complicated for them and their attorneys.

PLAN TO FILE BANKRUPTCY IN ADVANCE FOR A BETTER SUCCESS

If a decision is made to seen bankruptcy relief and to try to revive or rehabilitate the business the management of the business will need to plan the filing well in advance. This to make sure they will not have problems with the use of the cash that is generated by the business, make sure that employees are paid and the checks clear and that vendors who are critical to the operation are dealt with appropriately. A business plan is critical to success since most often in the early stages of the case creditors are active and if unfriendly the bankruptcy court will want to know what the prospect of success will be for the business.

SHUT THE BUSINESS DOWN OR REORGANIZE

In many cases a decision is made to shut the small business down rather than try to reorganize it. The business plan plays a key role in that decision. The shutdown if done properly can be done in a way to minimize the potential problems for the management and owners while still insuring that the insolvent business meets its obligations to act properly and fairly towards the creditors. Proper planning is key here. At Broumas Law Group we have experience helping many different businesses with an orderly shutdown.

BUSINESS STRUCTURE EFFECTS BANKRUPTCY

The business structure also needs to be understood. A corporation or limited liability company will protect the business owner from many liabilities if he did not personally sign guarantees or do things that harm creditors once the business became insolvent. A review of the agreements with vendors will often help determine the risks for the business owner with respect to trade creditors. Of course most commercial lenders will have a guaranty of their debt. The person signing those guarantees will not be able to easily avoid responsibility for those debts. Sole proprietorships and partnerships unfortunately do not protect the owners and therefore in those cases the business and the individual owners are more vulnerable.

GET HELP FROM BUSINESS BANKRUPTCY ATTORNEY

There are many issues that need to be considered if you are running a distressed business. Our bankruptcy attorney at Broumas Law Group can explain each of those areas to you as well as advising which type of bankruptcy is right for your business. We can also help advise you if other options are better for your business.

What Bills Should I Pay Once I Decide to File Bankruptcy

NO NEED TO PAY UNSECURED CREDITORS BEFORE BANKRUPTCY

A common question asked by clients is should I continue to pay my bills now that I have decided to file bankruptcy. The answer depends on several factors:

Most unsecured creditors should not continue to be paid after the decision is made to file. Those creditors will not receive anything from the bankruptcy in most cases and there is normally not a good reason to treat one creditor better than another. If the client is seeking bankruptcy relief the clients needs the funds and once the decision is made to file bankruptcy there is no good reason to throw money away.

ALL CREDIT CARDS BILLS NEEDS TO BE INCLUDED IN BANKRUPTCY

Many clients want to know if they can keep some of the credit cards. Not include them in the bankruptcy. This is definitely not allowed. Bankruptcy requires that you list all persons you owe in the schedules and those documents are signed under penalty of perjury. The only way to not list the creditor is to pay him off before the bankruptcy is filed. For non-family members or insiders the payment cannot exceed $600 in the aggregate in the 90 days before the case is filed or the creditor will have the potential of having the trustee ask for the money back as a preferential transfer. For family members or insiders the money can be recovered for payments that were made within a year.

Even if the entire credit card is paid off before the filing the credit card companies will in most cases figure out that the client filed a bankruptcy and will cancel the line of credit. There is therefore little benefit to paying off or making any payments on credit cards or unsecured debts just before the case is filed.

PAY FOR THINGS YOU WANT TO KEEP

Sometimes the answer will depend on the type of debt that is being repaid. For example if the client plans to keep your car or home the client will most certainly want to remain current with your monthly payments. These loans are protected by assets (Real estate or car) and therefore are unlikely to be treated as preferential transfers. If you do not stay current the creditor will be entitled to repossess or foreclose and sell them. If you plan on surrendering the car or house then there is little benefit to making the payments.

OLD TAXES, SUPPORT OBLIGATIONS IN BANKRUPTCY

Some unsecured debts have special treatment in a bankruptcy and can be paid. Income taxes that were first due less than 3 years before the bankruptcy was filed will not be discharged by the bankruptcy and are also entitled to special treatment ahead of other unsecured creditors. If they are paid they will probably not be preferences and since they will survive the filing there is no harm if they are paid. Child support, alimony, and other support obligations must be paid. The Chapter 7 bankruptcy filing has no effect on these obligations.

CONTACT MARYLAND BANKRUPTCY ATTORNEY

One important area of pre-bankruptcy planning involves the analysis and treatment of creditors before the case is filed. In many cases with proper planning the debtor is able to retain significant cash or repay obligations that would survive bankruptcy. When you have come to the decision that filing for bankruptcy is the right move for you, contact Maryland bankruptcy attorney at Broumas Law Group for help with the planning that is needed before a case is filed.

Fraudulent Conveyances and Preferential Transfers in Bankruptcy

BALANCE BETWEEN CREDITORS’ RIGHTS AND DEBTORS’ FREEDOM FROM DEBT IN BANKRUPTCY

Bankruptcy law is an effort to balance the rights of creditors to protect their interests and debtors to free themselves from debt and get a fresh start. No one benefits from a system that puts borrowers in a situation where they are not able to support their families because they are swimming in debt. On the other hand bankruptcy law recognizes that creditors interests need to be protected from abuse. Clients occasionally ask whether they can transfer things to their friends or family members and than file bankruptcy.

KEEP EXEMPT ASSETS BY FILING BANKRUPTCY

Fortunately most people can keep the things they own, file bankruptcy and get rid of the debt. The law allows you to keep or exempt certain property and in most cases those exemptions are enough to protect the things you own. If however the assets cannot be exempted, those assets also cannot be transferred to others just before a bankruptcy case is filed to try to keep them from the reach of creditors or the bankruptcy trustee. This is where the balance tips in favor of the creditors. Transferring assets to others with intent to hinder, delay or defraud creditors will lead to a loss of a discharge and could even subject the parties to criminal prosecution. Bankruptcy law allows the trustee to sue the recipient of a fraudulent conveyance and to get the property or its value back if the transfer was made within 2 years of the bankruptcy filing. Maryland State law has similar provisions that allow the trustee to reach back as far as 3 years.

FRAUDULENT TRANSFERS

There is also a different type of fraudulent transfer. The kind that is not done to protect assets from the creditors but that still technically allowed someone to take something of value away from the bankruptcy estate. An example of this would be a large gift to a family member, done for legitimate purposes but still depleting the assets owned by the person who files bankruptcy. Another example would be the sale of a car or another asset for a lot less than what it is worth. This type of transfer will not get the debtor in trouble, causing the loss of a discharge or possible criminal charges but it would still be a transfer that could be avoided, allowing the trustee to sue the recipient for the return of the property or its value.

PREFERENTIAL TRANSFERS

Preferential transfers are yet another way that bankruptcy will try to balance the rights of creditors. The principle is to make sure similar creditors are treated the same. Thus if a borrower pays a significant payment to his VISA card or other unsecured creditor within 90 days of the filing of the bankruptcy case the bankruptcy trustee can get the money back and share it equally with all the creditors. This is not because it is wrong to pay creditors but just to make sure no creditor is preferred over any other.

GET HELP FROM MARYLAND BANKRUPTCY ATTORNEY TO DEAL WITH TRANSFERS AND FRAUD ISSUES

The situation of avoidance of preferences becomes more painful if the borrower has paid back mom, dad or another relative within one year of the filing. Despite the fact that the family member really did loan the money and it was expected that the debtor would repay it, the Chapter 7 trustee can get the money back. Obtaining good advise regarding this part of bankruptcy law is essential before filing a bankruptcy case. The Maryland bankruptcy attorney at Broumas Law Group can help you through these issues and insure your case goes smoothly.