Do You Really Need a Good Credit Score?

A older potential client comes into the office to discuss bankruptcy. After analyzing the client’s situation, I explain what bankruptcy can do for them. The client will lament that their credit score is/was so good and bankruptcy will give the client bad credit. At that point, I have to stop the client and ask them, Do you really need a good credit score?

Your credit score is based on various factors like amount of debt, are you in default on your debt, do you have a job, etc… All this info is crunched into a number that is supposed to tell a lender what the odds are you will pay back a debt. The higher the number, the more likely you are to pay back a debt. Generally speaking, the higher your credit score, the easier it is to get credit and the lower the interest rate will be.

For many older people, getting new credit in the future isn’t in the cards. They don’t want to get a mortgage, nor do they want to get a car loan in the future. They already have too much credit card debt and have sworn off using credit cards in the future. So if you’re not borrowing any money, a low credit score won’t effect you.

This leads to the other point I make, there is a cost to maintaining a high credit score. Lets say your minimum debt payment a month is $1000 and if you paid that $1000 for the next 5 years and didn’t borrow any more money, your debt would be paid off and your credit score would remain high. So in that scenario, your good credit score is going to cost you $60k over those 5 years.

Compare that to filing chapter 7 bankruptcy. Instead of paying the $1000 a month to creditors, the bankruptcy would discharge the debt within the first 3-4 months. So if you’re not going to get new credit in the future and the costs of food, gas, medical care, etc… going up, what’s more useful to you? $1000 extra per month or good credit?

Can i have too much debt to file a Chapter 7?

One of the biggest myths is can i have too much debt to file a Chapter 7? Contrary to what some might think the answer is no. The Bankruptcy Code does not impose a limit on Chapter 7 debts because Congress intended for Chapter 7 to be a fresh start.

One word of caution though: significant amounts of credit card debt i.e. over $100,000.00 or large balance transfers can raise a red flag with the Chapter 7 Trustee or the Court. It is very important that you disclose all of your debts and more importantly the amount of debt to your attorney to ensure your Chapter 7 goes through the process smoothly.

Why The Theory That Americans Are Too Broke To Go Bankrupt Is A Very Dangerous Suggestion For Consumers and Simply Not True

I am writing this piece in response to an article entitled Americans: Too Broke To Go Bankrupt by Blake Ellis | CNNMoney.com published on Mon, May 7, 2012 6:55 AM EDT. See http://finance.yahoo.com/news/americans-too-broke-bankrupt-105500347.html.  In this article, Mr. Ellis suggests that the pricing for filing a bankruptcy case is too high and that Americans cannot afford the prices. Money is important whether it is one dollar or a million dollars.  However, the amount of money that a Debtor pays for a Bankruptcy case verses the benefits received from the case is clearly something that Mr. Ellis has failed to mention in his article.  Mr. Ellis also fails to mention that most jurisdictions placed limits on the amount of fees that an attorney can charge a Debtor to prepare and administer the case.

Nevertheless, let us really examine what Mr. Ellis is trying to say in his article.  He is suggesting that $1,500.00 is too much for Debtors to pay to get relief of debt that could range from $20,000.00 to more than $100,000.00.  Let us put a fee of $1,500.00 into perceptive for Debtors with $30,000.00 of debt owed to unsecured creditors.  I use $30,000.00 as example because this is the average amount of unsecured debt that our clients come into our office seeking relief from.  We find that the average monthly minimum payment that our clients are paying each month on this amount of debt adds up to nearly $1,100.00 a month.

If you take a step back from this debt you realize that, for the same price to pay on the minimum payments each month, a bankruptcy case can be filed.  This issue is very concerning for me because often our clients do not want to spend $1,500.00 for a fee to resolve their debt, however, they find it ok to continue to pay almost the same amount to their credit card companies while struggling each month to pay their basic utilities or put food on the table for their children.

Bankruptcy was designed to help Debtors deal with their debt so that they do not have to make the choice of paying for food or paying their credit cards.  Mr. Ellis’ article fails to address the value that a bankruptcy case can bring to a Debtor.  Instead, he wants us all to believe that it is too expensive for Debtors to even think about filing.  This is very dangerous.

The reason this is dangerous is because it gives Debtors the idea that they cannot file, which is simply inaccurate.  If Debtors do not file when they should, they could suffer a lifetime of creditors always coming to collect against them, court judgments, and bad credit.  Bankruptcy was designed to allow people who fall on hard times to protect themselves from collections, court judgments, and bad credit for life.  Debtors can turn their whole lives around in only three months in a Chapter 7 case or three to five years in a Chapter 13 case.

Our firm works with Debtors when it comes to fees.  We understand that Debtors may not be able to pay a full fee immediately.  We often set fees arrangements based upon what our client can pay each month.  Most of our clients realize that once they eliminate high monthly payments, which go mostly to interest on credit cards, they have the ability to live on their income without the need of credit cards and can afford the fee to pay for a bankruptcy case.

My major concern with Mr. Ellis’ article is that it misses the practical point of bankruptcy and the benefits that should never be overlooked.  Yes, it does cost some money to complete a bankruptcy cases with an attorney, but the amount is affordable and no one should use a price for services to deter people from getting a fresh start with a bankruptcy case.

Will I Lose my Stuff if I File for Bankruptcy?

By John M. Hilla, a Michigan Bankruptcy Attorney

Potential clients come to me with a wide variety of notions about how their assets are affected by the filing of a Chapter 7 or Chapter 13 bankruptcy. Some people are under the impression that they are “allowed” only a certain dollar-value amount of property in a bankruptcy and that the excess value will be lost; some are under the impression that they are allowed a static set of different things: 1 car, X amount of furniture, and so on.

In a shorthand sort of way, these assumptions are sort of true … but not entirely.

What you are allowed to retain in terms of personal assets through the bankruptcy process depends, first of all, greatly upon whether you are filing a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. In either case, the same process of listing, describing, categorizing, and valuing your assets must occur. However, only in a Chapter 7 bankruptcy is there any real prospect of your personal property actually being taken from you and liquidated, or sold off, for the benefit of your creditors whose debts are largely to be entirely discharged by the bankruptcy process itself. There is no liquidation of property or assets at all in a Chapter 13 reorganization bankruptcy, which is one of that Chapter’s greatest advantages.

In a Chapter 7 bankruptcy, the liquidation (seizure and sale) of some of the personal assets of the filing consumer is how their creditors are partially compensated by the court (and, therefore, by the US goverment), which is otherwise letting the consumer off the hook for all of his or her debt (other than debt that is not dischargeable, such as recent tax debt, student loan debt, and a few other forms of debt).

However, that said, most consumers who file Chapter 7 bankruptcy do not lose any personal property at all.

This is because the bankruptcy process does indeed allow you to retain X amount of your stuff. It is not, as some of my clients in Michigan have thought, an overall dollar amount. What you are allowed to retain depends on the type of property involved, and it depends upon how your attorney is protecting it.

By “protection” of property, what is actually meant is the exemption of the property from the legal bankruptcy estate containing everything you own, are owed, or owe anyone else that is created by automatic legal function as soon as you file a bankruptcy petition with the court. By default, everything you own (which should all be listed in the petition) is part of the bankruptcy estate–and subject to the power of the Chapter 7 Trustee assigned to your case after filing by the court to seize and liquidate it in order to distribute the resulting proceeds to your creditors. However, the Bankruptcy Code provides what are called “exemptions.” These “exemptions” are bits of the Federal Bankruptcy Code statute that allow you to “exempt” or remove from your bankruptcy estate certain types of property up to certain dollar value amounts. Most states have their own sets of exemptions as well, and, in some states, such as Michigan, where I practice, your attorney has the option of using either the state set of exemptions or the Federal exemptions.

One example of a Federal exemption is the jewelry exemption: up to $1450.00 (currently) worth of jewelry may be exempted from the bankruptcy estate. Property is generally valued, depending on your georgraphic area and the court rulings of your individual Federal court district, at liquidation or “garage sale” value—not replacement or insurance appraisal value. If your jewelry could be sold out of your front yard for no more than $1300.00, the Federal exemption would exempt—and protect—all of it. If it were worth $1500.00, on the other hand and there were no other exemption available to cover the additional $50.00, you would have to work out a settlement with the Chapter 7 Trustee through your attorney to pay the Trustee the additional $50.00 if you wanted to keep it–or you would deliver it to the Trustee for auction and sale.

Not every Chapter 7 case can be a “no-asset” case in which no property is subject to liquidation by the Trustee. Sometimes, that is just a cost of the benefit of walking away from a large amount of debt otherwise scot-free. However, it is the minority of cases in which this occurs, and, nearly always, at least in the Eastern District of Michigan, where I practice, the Trustee would always rather take a check for $50.00 than to have to sell your jewelry off. Deals can be made to retain even property that cannot be fully exempted.

Before deciding that bankruptcy is too great a danger to your assets to consider as an option for moving forward from unamanageable debt, speak with an experienced bankruptcy attorney who can expertly guide you through the options available: full exemption and protection, Chapter 7 and property surrender, Chapter 7 and Trustee settlement negotitation, or Chapter 13 bankruptcy. Not every option is a perfect option, but one of them may be significantly better than treading water against a years-long struggle against overwhelming personal debt.

Will My Friends and Neighbors Know If I File Bankruptcy?

by John M. Hilla, a Michigan Bankruptcy Attorney

Concern for one’s reputation is one of the most widely expressed misgivings that potential clients want to talk about when we initially meet to explore the option of a personal bankruptcy. This concern is particularly strong among people in professions requiring licensure, such as insurance agents or stock traders or real estate professionals (not to mention military security clearances, on occasion!), as well as those who simply interact regularly with the public and whose livelihoods depend upon them being viewed as trustworthy individuals: attorneys, medical professionals, teachers, and others.

It is a basic fact that bankruptcy is a public process and that the components of your bankruptcy petition that are filed with the US Bankruptcy Court are publically available on the Federal Court System’s PACER document website (with the exception of the single page of a typical bankruptcy petition containing your full Social Security Number—this page is not viewable on PACER). Thus, the safe assumption is that, if it is required to be disclosed in the bankruptcy petition (and all assets and liabilities—or debts—are), it is susceptible to being discovered by someone you might not rather have discover that information.

Generally speaking, however, when we are concerned about public reputation and friends and neighbors, there is not much to be concerned about from a practical standpoint. If you are a politician or celebrity or someone whom the media has a general interest in writing about, it is a virtual certainty that a bankruptcy filing would be discovered and publicizied. But for the rest of us, even those of us with real estate or other licenses, it is fairly unlikely that anyone will bother to think to go to the PACER website, apply for and receive a user-ID and log-in password, and arbitrarily search you out. Should you file bankruptcy and should someone be motivated to do that (and know how the not-always-very-user-friendly PACER system works), they will find you. But, in most instances, people we casually or socially or even professionally know are not quite so motivated.

Further, given the state of the economy over the past ten or more years, you may be surprised to discover who among your friends and acquaintances has already availed themselves of this legitimate and legal process, the roots of origin of which date back through the US Constitution, the Magna Carta, and the Book of Deuteronomy. The “taint” of bankruptcy is not what it used to be, as I am repeatedly reminded when I receive a phone-call or email from a new potential client who has been referred by one of my prior clients.

Once upon a time, bankruptcy clients did not offer referrals because they were too embarassed to admit that they had undergone the process. This is no longer the case as more and more people have moved forward with the most effective form of debt-relief available under American law.

Will you friends and neighbors know if you file bankruptcy? If you tell them that you did so, yes. Otherwise, odds are against it. But, even if they discover that you have gone forward to find a fresh start for yourself and your family, the chance that they will view you with disfavor because you have done so is, in this day and age, far more slim than it has ever been.

Myths and Truths About Chapter 7 Bankruptcy, Part V

(Legal Series: Read the previous parts at www.lickerlawfirm.com)

Myth: A Chapter 7 bankruptcy will prevent a foreclosure or repossession.

Truth: A Chapter 7 bankruptcy will not prevent a foreclosure or repossession. A person should not file a Chapter 7 bankruptcy if they are trying to prevent a foreclosure or repossession and/or are behind on their payments. A Chapter 13 should be filed in that case. In a Chapter 7, a person should be current on their vehicle and/or home. There is an automatic stay that is implemented in the Chapter 7 as well as the Chapter 13; however, there is no repayment plan in a Chapter 7 bankruptcy like there is in a Chapter 13 bankruptcy.

Therefore, if a person files a Chapter 7 bankruptcy when they are delinquent on payments, the creditor will most likely immediately file a motion for relief from the automatic stay. If the debtor is unable to catch up on payments by the time of the hearing on the motion for relief, the court will likely grant the motion for relief, and the car or home can be repossessed or foreclosed.

Myth: In a Chapter 7, debtors will lose their house and/or vehicle.

Truth: In a Chapter 7, debtors will not necessarily lose their house or their vehicle just because it is included in the bankruptcy. All assets must be listed in the bankruptcy petition.