Lets Take A Look At A Few Of Those Mistakes:
Failing to fully understand the credit card terms. Many post-bankruptcy debtors are so excited to receive credit card offers after their bankruptcy that they end up skimming over the terms of the credit card. This can result in signing up for credit cards which are stuffed with many fees and high interest rates.Placing irresponsible authorized users on their credit card account. Many post-bankruptcy debtors make the mistake of trying to help out friends and family by placing them on their credit card accounts as authorized users only to be left with a large bill after those people fail to pay.
Co-signing credit card accounts or other loans for friends and family with credit issues. Post-bankruptcy debtors must remember that if they are not paying their own bills their friends and family members are even less likely to pay a bill which was co-signed.
Failing to communicate with creditors early and often when they run into financial problems. Post-bankruptcy debtors are not immune to financial issues after their bankruptcy discharge. But when those issues do come up, they must make sure they communicate clearly and early with creditors.
Failing to get any creditor agreements in writing. As we mentioned in point #4, sometimes there are financial issues which require us to work something out with creditors. But post-bankruptcy debtors need to make sure that they get all agreements in writing.
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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.
Talking To Your Employer
If you have to list that company credit card, you need to talk with your employer before filing for bankruptcy. This isnât something you want your accounting or HR employees or your boss to find out when they get a notice from the lender or from the bankruptcy court.
The thought of having to sit down with an employer and admit that youre going to declare bankruptcy can be intimidating. Keep in mind that itâs illegal to discriminate against a person for filing a bankruptcy case.
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Qualifications For Filing Bankruptcy For Credit Card Debt
If you want to file Chapter 7 or Chapter 13 bankruptcy, there are qualifying standards to meet, most of which are intended to determine whether a consumer is capable of handling the debt themselves. People wanting to file Chapter 7 bankruptcy must pass a means test and those trying to file Chapter 13 have strict amounts of debt they cant exceed.
The means test for Chapter 7 involves two considerations. You can pass the test if your income over the previous six months is under the median income for your family size in the state you live. The majority of Chapter 7 filers pass the means test this way.
If you dont, then you move on to the second consideration: Is there enough income left over to pay down your debt, after deducting expenses for essential items like rent, food, clothing, transportation, utilities, etc.
If there is enough money left, you will be dismissed from Chapter 7 and referred to filing for Chapter 13. If there isnt enough money left over, you may qualify for Chapter 7.
In Chapter 13, the qualifying debt amount for an individual cant exceed $419,275 for unsecured bills and $1.257 million for secured debt . Be careful with both categories of debt. If you have fallen behind on payments, your totals may exceed the allowed amount.
What Are The Requirements For Bankruptcy
The requirements for bankruptcy depend on the type you’re hoping to file. To file Chapter 7 bankruptcy, for instance, your income in the previous six months must be lower than the median income for households of the same size in your state. If it isn’t, you can undergo a means test that assesses your financial status and ability to pay your debts.
Other factors the court considers include how long it’s been since you last filed bankruptcy, whether you’ve completed a credit counseling course and the reason behind the filing.
Under Chapter 13 bankruptcy, you must have enough income to make the monthly debt payments outlined in the reorganized debt plan. You must have also filed a tax return in all of the previous four years. The court will also consider the amount of your debtyou can’t, for example, have more than $419,275 in unsecured debtas well as whether you’ve completed a credit counseling course and more.
If you’re not sure whether you qualify for bankruptcy, search for an attorney in your area who is willing to do a free consultation to assess your situation and provide you with expert advice.
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Dont Transfer Property Out Of Your Name Or Sell Property For Less Than It Is Worth
Many people move property out of their name, by gift or sale at less than fair market value, for fear of losing the property in bankruptcy. A few examples include: changing title to a car from your name to the name of your child or spouse removing your name from a joint bank account moving funds from your bank account into a bank account belonging someone else and deeding real property titled in your name to your spouse or another person for free or a nominal value. These transfers are a huge mistake because the assets might have had exemptions to protect them from creditors and, more importantly, the transfers may be considered actual or constructive fraudulent transfers that can be reversed in bankruptcy. The proceeds of the property would be shared among the unsecured creditors and you may have jeopardized your ability to obtain a discharge.
How will a trustee found out? Your bankruptcy petition requires extensive disclosure of property transfers prior to filing and you can be sure you will be asked about transfers under oath at the Meeting of Creditors. The look-back period for reversing such transfers can be four years or longer, depending upon the property and the nature of the transfer. Concealing such transfers could land you in jail.
Things To Do Before You File Bankruptcy
Problem-free bankruptcy requires planning. You can save yourself some serious headaches by checking these 10 items off your to-do list before you file.
#1 Move Money to Avoid Setoffs
If you owe money to a bank at which you also have deposit accounts , the bank can use the balance that was in your checking account on the date you filed for bankruptcy to pay down the loan or credit card balance you owed on the date of filing. This is called a set-off. Consider moving your funds to another bank before you file.
#2. Keep Ready Cash Available in Case of Frozen Bank Accounts
Some banks even if you do not owe them money will freeze your accounts if you file bankruptcy. If your accounts are exempt from creditors, you will eventually regain the use of the frozen funds. However, this process can take time, sometimes at least 60 days. Have a contingency plan in place for how you are going to pay expenses in the meantime.
#3. Pay Ordinary Bills and Spend Money Down before Filing
#4. Plan for Utility Company Setoffs
#5. Stop Automatic and Direct Debit Payments
Because of the automatic stay that issues when a bankruptcy petition is filed, most creditors will routinely stop any direct debit of your bank account and refuse automatic payments.
#6. Stop Using Credit Cards
#7. Stop Paying Unsecured Creditors before Filing
#8. Order and Review Credit Reports
#9. Keep Track of Monthly Income and Expenses
#10. Complete Credit Counseling
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How The Law Is Typically Applied
Because of the fraud laws, its best to avoid using your credit card before filing Chapter 7 bankruptcy, especially once you know you want to pursue it. However, the decision to file is not an easy thing to track.
Even you might not know for sure when exactly you decided you wanted to file, and its even more difficult for the court to provide evidence of intent. Thats why, in practice, there are benchmarks for what kind of charges raise the question of fraud. They are:
- Luxury purchases: Spending $750 or more on things like jewelry, restaurants, or vacations 90 days or less before filing for bankruptcy.
- Cash advances: Taking out $1,000 in cash advances from a single card 70 days or less before filing for bankruptcy.
The courts will automatically presume charges in both categories to be fraudulent. That means you will have to prove that you did not intend to include these debts in your bankruptcy, which is the opposite of most cases where youre innocent until proven guilty.
For charges that dont fall neatly into these categories, theyll consider what you purchased, how much you paid for it, and when you bought it in the context of your case as a whole.
If you have credit card charges in the months before filing Chapter 7 bankruptcy, be prepared to answer questions about what made you decide to file and when you first made the choice.
Dont Withdraw Money From A Retirement Account
It generally takes years of hard work and regular contributions to accumulate retirement savings in a 401 or IRA retirement account. While it may seem like withdrawing money from a retirement account to pay creditors might help your bankruptcy case, there are many reasons why it will not.
First, retirement accounts receive among the greatest protections against creditors of all assets either inside or outside of bankruptcy. Most tax-exempt retirement accounts are fully exempt and the exemption limits on certain IRAs generally exceed $1 million. Since you get to keep those retirement accounts in bankruptcy, it makes no sense to use them to pay creditors, particularly on debts that would be fully dischargeable in bankruptcy.
Second, while funds in retirement accounts are fully protected against creditors, once those funds are withdrawn and deposited into a bank account, they will require a different exemption for protection or they may become part of your bankruptcy estate available to creditors.
Third, if you used funds withdrawn from a retirement account to repay creditors in the three months before you file bankruptcy or if you used funds withdrawn from a retirement account to repay friends or family members in the twelve months before you file bankruptcy, those payments may be preferences that could be recaptured by a Chapter 7 Trustee and shared with all of your unsecured creditors.
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Exceptions For Eliminating Debt With Chapter 7 Bankruptcy
While there are plenty of reasons to eliminate credit card debt through Chapter 7 bankruptcy, there are two major reasons you would not have the debt successfully discharged:
- You incurred debt on your credit card as the result of fraud
- You used the credit card to purchase property that the creditor has a security interest in, such as a high-end appliance or piece of jewelry.
The issue of fraud could be the result of you making false statements that allowed you to get the credit card in the first place. For example, over-stating your income on your application or possibly doctoring or counterfeiting a credit card to make purchases.
It also is considered fraud when you use the credit card to make luxury purchases of more than $725 or took a cash advance of more than $1,000 within 70 days of filing bankruptcy. In other words: If you know youre going to file bankruptcy, dont go running up tabs on your credit card.
The second reason is rare, but could result in purchases you made, being repossessed. If creditors see that you bought a top-of-the-line appliance or living room furniture or gold and diamond jewelry, that could be considered secured debt. They could call it collateral and ask for it.
The debts for these purchases can be wiped out, but you wont be permitted to keep the property.
Make It A Habit To Monitor Your Credit
Whether you opt for bankruptcy, debt consolidation or any other of the above options, it’s important to keep track of your credit score during the process.
With Experian’s free credit monitoring service, you’ll get free access to your FICO® Score powered by Experian data. You’ll also be able to view your Experian credit report, which is updated every 30 days. Other features include real-time alerts when changes are made to your credit report, including hard inquiries, new accounts and changes to your personal information.
As you stay on top of your credit, you’ll be able to spot potential issues quickly and address them before they damage your credit score too much. You’ll also be able to keep track of what your creditors are reporting to the credit bureaus and make sure it’s accurate.
As you come out the other side of your debt repayment plan, maintaining the habit of checking your credit regularly and developing good credit habits can help you achieve your goals of rebuilding your credit history more quickly.
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If I Declare Bankruptcy Will I Ever Get A Credit Card Again
Filing for bankruptcy significantly impacts your credit score. After filing, it takes some time to recover and rebuild credit but it is still possible to get a credit card again. Eligibility will be limited to specific types of credit cards that are for people with lower credit scores . This is a great way to start rebuilding your credit which is important after declaring bankruptcy.
Dumb Moves To Avoid Before Bankruptcy
Want to make your bankruptcy case smooth, of would you prefer having a tough time of things?
If youre thinking about bankruptcy, theres a good chance youve never been through the process before.
In fact, most of the people who look into bankruptcy are going through this for the first and only time in their lives.
Thats good and bad. Its good because it means that most people use their bankruptcy case as the starting point for a new, better financial future.
But its bad because more of my clients are walking into unfamiliar territory. With that comes fear, uncertainty and a general unsettled feeling that its tough to shake.
In fact, I wish all of my clients had this handy cheat sheet well in advance of them finding me.
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A Creditor Making You Bankrupt
Your creditors can present a creditor’s petition if you owe them an unsecured debt of over £5,000. This may be the sum of two or more debts which total over £5,000. There might be different petitioning creditors on the same petition for different debts you owe.
Once bankruptcy proceedings have started, you must co-operate fully even if it’s a creditor’s petition and you dispute their claim. If possible you should try to reach a settlement before the petition’s due to be heard – doing it later can be difficult and expensive.
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