Before Filing For Bankruptcy
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Keeping Credit Cards After Your Bankruptcy
Many people find their credit card canceled even though they had a zero balance and the credit card was not included in their bankruptcy schedule.
Imagine six months after your bankruptcy has been discharged. Youve turned your financial situation around and there is no more worrying how you are going to pay your bills. Everything is on the up and up youre budgeting well and have a little money to spend, so you decide to pick up the tab for a meal with some of your family, friends, or worse, your boss. Out of nowhere your credit card is denied. Your credit card has been canceled without warning by the creditor.
You wonder how this could be, because this credit card wasnt even included in the bankruptcy. The credit card had a zero balance on it so you werent required to list it on your bankruptcy schedule. What happens is your creditor caught wind of your bankruptcy and immediately canceled you in order to be protected. With Chapter 13 cases some creditors will cancel you on accounts that you paid off.
A similarly related issue is that some people find that their credit cards are listed as discharged under bankruptcy on their credit reports even though they worked hard to pay them off. They felt that keeping a remaining card in good standing would help them bounce back from their bankruptcy. Then the card ends up listed just like the others.
Why Do People File A Chapter 7 Bankruptcy Case
There are many reasons to file bankruptcy. Some of the common reasons people file Chapter 7 include:
Unemployment or a temporary decrease in income
Accident injury or sudden illness that results in substantial lost wages
Medical bills that the person cannot pay
Death of a spouse or family member
Loss of a business or downturn in business
Too much credit card debt
Poor financial management skills
Foreclosures or repossessions
Debt collection lawsuits and personal judgments
The Bankruptcy Court does not judge a person for why that person needs to file for debt relief. The Chapter 7 trustee assigned to your case does not judge you either.
If a person cannot pay their debts for whatever reason, that person may qualify to file a Chapter 7 bankruptcy case if they meet the income requirements to file a Chapter 7 in their state.
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How The Credit Card Company Challenges The Dischargeability Of Your Debt
When you file bankruptcy, your credit card company will look at your transaction history to see if you made any large purchases before you filed. If it finds evidence of fraudulent activity, it can file a lawsuit against you in your bankruptcy, called an adversary proceeding asking the court to make that debt nondischargeable.
If you don’t respond to the lawsuit, the credit card company will obtain a default judgment against you, and the debt will not be discharged. If you do respond, you will likely have to spend thousands in legal fees defending it, and despite paying all those legal fees, you might still lose and have to pay back the credit card debt as well.
Because of the high cost of litigation, most people who are faced with an adversary proceeding for fraud negotiate to repay the debt, sometimes for a lesser amount.
One Response To Can You Apply For A Credit Card During Consumer Proposal
, A licensed trustee said:
Thee is nothing stopping you from applying for credit during a consumer proposal . You are required to inform the company that you are in a proposal . Once the lender hears that it is unlikely you will be approved
If you dont inform them about the proposal you will be committing an offence and some very unpleasant things may happen, including, but limited to, the Court canceling your proposal should they find out.
Talk to your trustee about why you need credit during the proposal your trustee will likely suggest a secured credit card if you really have to have one.
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After Filing For Bankruptcy
After you file for Chapter 7 or Chapter 13 bankruptcy, you are required to complete a U.S. Trustee approved Debtor Education course before you can receive your discharge. This means two courses are actually required:
Your bankruptcy attorney may refer you to a Debtor Education course or you may be able to use the same resource used for the credit counseling course.
What Happens When I File Bankruptcy
Filing for bankruptcy after youve defaulted can protect your assets from being seized by the lender or creditor.
In a Chapter 7 bankruptcy, the court will decide which of your assets to sell in order to repay your creditors. Any remaining debt will be discharged, except for student loans, child support, taxes and alimony. This type of bankruptcy will stay on your credit report for 10 years.
If you file for Chapter 13, you may be able to keep more of your assets while discharging some of your debts. The debt that is not discharged will be put on a three- to five-year repayment plan. This will stay on your credit report for seven years.
Your credit score will likely go down significantly if you file for bankruptcy by at least 130 points, but sometimes by as much as 200 points or more. If you work in an industry where employers check your credit as part of the hiring process, it may be more difficult to get a new job or be promoted after a bankruptcy.
Jay Fleischman of Money Wise Law says that if you have credit cards, they will almost always be closed as soon as you file for bankruptcy. Getting another loan or credit card will also be very difficult in the early stages after bankruptcy. But as time goes on, the bankruptcy will affect your score less and less if youre responsible with your credit.
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When The Trustee Pays Credit Card Creditors From The Bankruptcy Estate
Most Chapter 7 bankruptcies are “no-asset cases.” There’s no property to sell for the benefit of the creditors. In the rare asset case, creditors will receive money according to a priority ranking system. Credit card debts–which are nonpriority claims–fall at the bottom of the list. So it’s unusual for a credit card company to receive any payment at all.
How Accounts Appear On Your Credit Reports
Before filing for bankruptcy, you probably had bills you struggled to keep up with credit cards, medical debt and more.
When you include those accounts in a bankruptcy filing, theyll still be reported on your credit reports. Accounts discharged in bankruptcy can be reported as discharged or included in bankruptcy with a zero balance. Even though you owe $0 for them, theyll still appear on your reports. If you apply for credit, lenders may see this note when they check your reports, and they may deny your application.
But heres that good news we promised: Accounts included in a bankruptcy filing wont be reported as unpaid or past due anymore, and you may feel relief without those financial burdens.
Your credit scores will eventually start rebounding with those positive effects, Huynh says. Thats assuming, of course, you use credit responsibly from here on out.
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Are You Being Sued Or Harassed
If you stop making payments on your credit cards, you’ll typically begin receiving numerous calls from the credit card company or its agents. The more delinquent you are, the more frequent and harassing the calls will become. For most people, the constant harassment from debt collectors leads them to consider bankruptcy relief.
Depending on your assets and the amount of debt you owe, the credit card company could decide to bring a lawsuit to collect its debt. If the credit card company obtains a money judgment against you, it will be able to garnish your wages or go after your assets to satisfy the debt. If you’re facing a lawsuit or the credit card company isn’t willing to work with you, it might be time to consider your bankruptcy options.
Learn about stopping a credit card lawsuit with bankruptcy.
How Bankruptcy Affects Credit
A bankruptcy filing is the most severe negative event that can appear in a credit report, and it can do deep, long-lasting damage to your credit scores.
A Chapter 7 bankruptcy, which eliminates all your debts, stays on your credit report for up to 10 years. A Chapter 13 bankruptcy, which restructures your debts and provides creditors partial repayment, will remain on your credit report for up to seven years.
When you file for bankruptcy, the best your creditors can expect to collect is a fraction of the money you owe them. It’s understandable, then, that bankruptcy typically makes lenders wary of issuing you new credit. Some lenders turn down any credit applicant with a bankruptcy on their credit report. Other lenders will consider applicants with older bankruptcy entries, but typically charge high interest rates and fees because they consider bankruptcy filers risky borrowers.
As long as a bankruptcy appears on your credit reports, it will tend to lower your credit scores. But its impact on your scores will diminish over time. Credit scoring models such as those from FICO and VantageScore® give new information greater weight than older information, so adopting good credit habits can help you start rebuilding your credit scores, even immediately after you’ve filed for bankruptcy.
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Restrictions On Obtaining Credit During Bankruptcy
Obtaining credit during bankruptcy can be challenging. If you file for a Chapter 7 bankruptcy, you can apply for credit as soon as the debt is discharged. With Chapter 13 bankruptcy, you will need to receive prior approval from the court or Chapter 13 trustee. Additionally, your plan payment must be current at the time of the request.
If you would like to get new credit during your Chapter 7 or 13 bankruptcy case, you should consult an experienced Cleveland bankruptcy attorney at Luftman, Heck & Associates. We will explain your situation to you and help you understand obtaining credit during bankruptcy.
Call us today at for a free consultation.
Chapter 13 Bankruptcy For Credit Card Debt
Chapter 13 bankruptcy is called reorganization and unsecured debt, like credit cards, is given a very low priority in the reorganization.
When you file for Chapter 13 bankruptcy, you submit a plan to the bankruptcy trustee that says you will pay most, if not all, of what you owe in three to five years. The next step is to prioritize the debts, starting at the top with secured debts , and priority debts .
Unsecured debt, like credit cards is at the bottom of the priority list.
The Chapter 13 filer then looks at his current and future income and determines how much will go to repay debts in a 3-5 year period. Very little, if any, is set aside for credit card debt.
If the bankruptcy trustee agrees with the plan, and the consumer makes the required payments, all debts are discharged, including credit card debt, when the final payment is made.
Because Chapter 13 bankruptcy does not put much emphasis on repaying unsecured debt, its likely most, or all of what you owe on credit cards will disappear with a successful discharge.
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Chapter 7 Bankruptcy: What It Is And How To File
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Chapter 7 bankruptcy can wipe out many forms of overwhelming debt under the protection of a federal court. You may have to give up some assets, like an expensive car or jewelry, but the vast majority of filers do not. Chapter 7 bankruptcy is the fastest and most common form of bankruptcy.
Chapter 7 bankruptcy erases most unsecured debts, that is, debts without collateral, like medical bills, credit card debt and personal loans. However, some forms of debt, such as back taxes, court judgments, alimony and child support, and student loans generally arent eligible. Chapter 7 bankruptcy will leave a serious mark on your credit reports for 10 years. During this time youll likely find it harder to get credit. Even so, youll probably see your credit scores start to recover in the months after you file.
Read on to learn about how you can qualify for Chapter 7 bankruptcy, how to file, whether this debt relief option is right for you, and how to rebuild after bankruptcy.
Bankruptcy May Help Relieve Your Debt Obligations But It Will Impact Your Credit For Years
Bankruptcy is a special legal proceeding you can use to reorganize or get rid of your debt, depending on your financial situation. Bankruptcy can be helpful if youre overwhelmed with financial commitments, but it could also negatively affect your credit. A bankruptcy will generally stay on your reports for up to 10 years from the date you file.
I refer to bankruptcy as kind of Armageddon on someones , says Freddie Huynh, vice president of data optimization for Freedom Debt Relief.
The good news is your credit can gradually heal if you take the right steps. Heres what can happen to your credit reports when you file for bankruptcy.
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How Luftman Heck & Associates Can Help
Prior to trying to get any type of new credit during bankruptcy, you should speak to a Cleveland bankruptcy lawyer at Luftman, Heck & Associates. Sometimes it makes more sense to wait until your bankruptcy proceeding is over before taking out loans. Once its over, you may be better off taking small loans that you can easily repay and use to rebuild your credit.
LHA can evaluate your particular situation and give you advice on whether or not obtaining credit during your Chapter 7 or Chapter 13 bankruptcy is a smart move. Contact us today by calling or emailing .
When To File For Chapter 13 Bankruptcy
If you have a regular monthly income but just cant afford to pay all your bills and are in jeopardy of losing your home, cars and other valuable possessions, then this option may be the answer. There is no means test to qualify. Your ability to repay your secured debts is the main requirement.
When you file for Chapter 13, your attorney will prepare a debt reorganization plan, which will spell out exactly what you intend to do with your debts. These plans usually give you three to five years to pay off what you owe. Bankruptcy law requires that the plan treat certain kinds of debts in a particular way. For example, you must pay the full amount of priority debts, including unpaid income taxes, unpaid property taxes, past due child support, and spousal support .
The next step after your reorganization plan has been filed with the court is to attend a creditors meeting. The trustee assigned to your case will ask you questions while under oath regarding your assets and debts to determine if you can afford to pay more than your reorganization plan indicates. Your creditors can ask questions about your finances as well.
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Maxing Out Your Credit Cards Before Filing Bankruptcy Can Be Fraud
Every time you use your credit card, you are obtaining creditthe credit card company lends you money with each swipe. Even when you use your credit card to buy a $2 candy bar, you’re being lent money for the purchase of that candy bar. Under federal bankruptcy law, credit obtained by “fraudulent means” can be deemed nondischargeable.
Is running up your credit cards right before you file bankruptcy considered to be “fraudulent means”? It can be if you do so for the sole purpose of getting what you can out of the credit card before wiping all the debt out in bankruptcy and you have no intention of repaying the debt.
As an example, suppose you visit with a bankruptcy attorney and make the decision to file Chapter 7. Then, knowing you won’t have to pay it back, you go on a spending spree with your Visa card. You intend to keep the stuff without paying back the debt because of the bankruptcy.
This behavior would likely be considered obtaining credit by fraudulent means. You’re using your credit card, and the credit card company is lending money based upon your promise to repay it. However, the fact that you have no intent to repay would likely be considered fraud.
Will I Be Able To Keep My Company Card
You may be able to keep your company credit card if you are an authorized user. Credit card charges made by an authorized user will be billed to the company directly and arent in the authorized users name. Therefore, if you are an authorized credit card user, you likely wont need to include the company card in your bankruptcy, and you should still be allowed to use it.
However, if you are an obligor on the account, you wont be able to use the company card anymore. If youre the obligor on the account, you and your employer are jointly responsible for paying the balance. This may include you paying the credit card bills and seeking reimbursement from your employer afterward. However, if there is a balance on the account, you will have to list it on your bankruptcy paperwork, and the credit card company will likely close the account.
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