Top 6 Ways to Rebuild your Credit Score after Bankruptcy

One of the great things about filing a bankruptcy is that it helps you get a financial fresh start. Instead of attempting to pay back debts that sometimes accrue at outrageous rates over a long period of time, you can discharge most debts and move on with life.24 Credit Factors

So how do I rebuild my credit after bankruptcy? In order to know how to rebuild your credit you need to know which factors influence your credit score. Credit Karma (which is free and which I highly recommend you use) explains and breaks down these factors into six categories. Three of the categories have a “high-impact”, one has a “medium-impact”, and the last two have a “low-impact” on your credit score.

You’ll want to pay attention to ALL categories but you should be most concerned about categories with high impact and the categories within your control. In the table below I have each of the categories listed along with an impact level and a control level.

Factor Impact Control
Credit Utilization High-Impact High-Control
Payment History High-Impact High-Control
Derogatory Marks High-Impact High/Medium-Control
Age of Credit History Medium-Impact Medium-Control
Total Accounts Low-Impact Medium-Control
Credit Inquiries Low-Impact Medium-Control

Because the first three categories have the highest impact, you should focus on these categories the most. I will discuss each of the categories below but if I were to boil the rules down to a formula to follow it would be these two rules:

1. Make all your payments on time
2. Use your credit, but use it responsibly

Following these two rules will have a high-impact, positive effect on your credit score.

1. Credit Card Utilization (& Credit Utilization)
One factor of your credit score is the amount of credit you are utilizing. This is a high-impact, high-control category which means this is a category you’ll want to focus on. While you don’t want to use all of your available credit, you also don’t want to use none of your available credit. The basic rule is to keep your credit utilization under 30%. For example, if you have one credit card and a credit limit of $1,000, you would not want to use more than $300 of credit on your card at any one time.

The funny thing about credit is that you have to use credit to get credit, a kind of chicken/egg problem. Fortunately there are easy ways to get credit without credit.

Secured Credit Card
One of the easiest, and safest, ways to build credit is with a secured credit card. With a secured credit card, you place a deposit of money with the credit card processor (typically between $50 to $200) and then you can spend on credit and pay off the balance at the end of the month. What’s so great about the secured credit cards is that the credit card company is completely protected by your deposit. And for you, the consumer, you can easily qualify for a secured credit card and start building credit.

I don’t have a specific secured credit card that I like but I know that Nerd Wallet has a good list of secured credit cards that they like.

Car Loan
People who file for bankruptcy are surprised when shortly after they file they are inundated with mail from banks and lenders wanting to finance a car. They know that not only that you are getting rid of a lot of debt, you are also not able to file another chapter 7 bankruptcy for eight years.

Most people need a car to get to work and get around in general so buying a car is not a bad idea. However, because you just filed for bankruptcy you are probably not going to be able to get a good interest rate. I suggest you purchase an older but reliable vehicle in the $5,000 to $8,000 range. You will be paying a higher interest rate but 20% on $5,000 is a heck of a lot less than 20% on $20,000.

A car loan is a great way to take on necessary credit in order to rebuild your credit.

2. Payment History
Payment history is another high-impact, high-control category. There might be some missed payments or late payments in your recent past but that is water under the bridge. You can control your future payments. And if you’ve filed a bankruptcy this should be an easier category for you because you no longer have to make payments to your creditors.

It’s very important to make ALL of your payments online. Many creditors and most banks make this easier by allowing you to set up automatic payments.

3. Derogatory Marks
Derogatory marks is a high-impact, medium-to-high control category. This category should actually be a “variable-control” because many derogatory marks can be difficult to avoid. Derogatory marks include bankruptcies, foreclosures, accounts in collections, and liens. Some bankruptcies can be avoided by wise financial decisions but there are a fair amount of bankruptcies that are completely out of the control of the debtor.

Typically these marks stay on your credit for a period of 7 to 10 years so it’s best to avoid these marks like the plague. Making payments on-time, living within your means, and having a rainy day fund in your savings are the best ways to make sure you avoid any derogatory marks in the future.

4. Age of Credit History
This is a medium-impact, medium-control category. The credit bureaus looks at the average age of your open credit accounts. The longer the credit history the easier it is for lenders to judge your credit worthiness. Again, this takes into account only your open credit accounts. For this reason it’s generally not a good idea to close an open credit account even if you aren’t using it.

While this category is classified as a medium-control category, it would be more aptly described as a high-control category that takes a long time to improve. While you can utilize credit today and you can make payments today to improve your payment history, you can only increase your age of credit history by waiting for time to pass.

That being said, age of credit history is a medium-impact category and an important category to keep in mind.

5. Total Accounts
Total accounts is a low-impact, medium-control category. Total accounts includes all of your credit cards, lines of credit, student loans, mortgages, or other lines of credit. Generally speaking the higher the number of credit accounts means that you have been approved for credit by more lenders. Because this a low-impact category, you shouldn’t worry too much about this category. In fact, it’s probably best to avoid more accounts if you have a tendency to spend a lot on your credit.

6. Credit Inquiries
Credit inquiries is also a low-impact, medium-control category. Whenever you apply for credit whether it’s a mortgage, a student loan, or a credit card, a hard inquiry is reported on your credit report. Typically the negative affect of this goes away after a short period of time. One thing you’ll want to avoid is having several hard inquiries in a short period of time.

While there are many factors that affect your credit score, you should focus on those categories that have a high impact on your score—credit utilization, payment history, and derogatory marks. Again, if I were to sum the advice into two simple rules it would be:

1. Make all your payments on time
2. Use your credit, but use it responsibly

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Bankruptcy trustee? 341 Meeting? The heck do ya mean? Or the 10 bankruptcy words you should know but probably don’t.

I had a conversation recently with someone I know that works with the California Highway Patrol. He likes to talk shop. He used some phrases that I wasn’t very familiar with such as “FST“, “Deuce“, and “Chippy“. Chippy? The heck do ya mean?1 I had to ask him what he meant by some and the others I figured out, probably because I watch a lot of Jeopardy. Probably not.

23 The heck do ya mean

I got thinking about the specialized language that every job has, including my own as a bankruptcy attorney, and I thought I probably use a lot of words that my clients don’t understand initially. I compiled a small list of the 10 terms that you should know if you are considering filing for bankruptcy. I think I might add a more complete list of terms in the future.

Here are 10 of the most common terms used in bankruptcy in alphabetical (and numerical) order.

1. 341 Meeting (or simply just “341”)

This is a meeting that you must attend about a month after you have filed for bankruptcy. A bankruptcy trustee (keep reading) will ask you questions about your petition (keep reading). The term comes from the section in the bankruptcy code, 11 U.S.C. §341, that requires that this meeting is held.

2. 521 documents

These are documents that you are required to send to your bankruptcy trustee (i.e. bank statements, tax returns, pay stubs, etc.). Again, this term comes from the section in the bankruptcy code, 11 U.S.C. §521, that indicates what documents you need to provide.

3. Automatic Stay

According to wikipedia, the “automatic stay is an automatic injunction that halts actions by creditors, with certain exceptions, to collect debts from a debtor who has declared bankruptcy.” Basically what this means is that the automatic stay is a legal remedy that keeps (or stays) your creditors from collecting from you, garnishing you, or conducting any legal proceedings against you. The automatic stay goes into effect the moment you file for bankruptcy. If you are a debtor that is filing for bankruptcy, the automatic stay is your friend.

4. Chapter 13 Plan

In a chapter 13 bankruptcy, you propose a plan to the Court and your creditors to pay back none, some, or all your debts. A chapter 7 on the other hand, does not propose a plan but provides for the liquidation of all non-exempt property. This analysis is complex and almost always requires the help of a bankruptcy attorney. Debtors make monthly payments over a period Chapter 13 plans are either for 3 years or for 5 years. You might hear the judge or chapter 13 trustee saying things like “the debtor failed to make his plan payment” or “the plan is unfeasible”. When they say these things they are talking about the chapter 13 plan

5. Domestic Support Obligations (DSO)

Domestic Support Obligations simply means child support or alimony. A lot of people know what this is but they rarely hear it called a Domestic Support Obligation.

6. Discharge

When you have completed your bankruptcy, the bankruptcy court will grant you a “discharge”. This means that you no longer have any legal obligation to pay your debts.

7. Exemptions

There are two types of property in bankruptcy: exempt property and non-exempt property. Bankruptcy law allows you to keep a certain amount of necessary property such as equity in a home or car, essentials such as household appliances and furniture, and retirement funds, just to name a few. The trustee cannot take these things away from you. Non-exempt property generally tend to be non-necessities or luxuries such as boats, ATVs, or other valuables that are not specifically mentioned as exempt. These are things the trustee can take. Because exemption planning can be quite complex, it’s a good idea to hire an attorney just for this reason alone.

8. The Means Test

From NOLO, the means test “determines whether your income is low enough for you to file Chapter 7 bankruptcy . . . [i]t’s a formula designed to keep filers with higher incomes from filing for Chapter 7 bankruptcy.” In more simple terms, you can’t file a chapter 7 bankruptcy if you make too much money. How much money is too much is determined by a formula. Again, you should see a bankruptcy attorney to determine if you pass the Means Test.

9. Petition

The bankruptcy petition is a document about 50 to 70 pages long that you file with the bankruptcy court to start your bankruptcy. This is the document that the bankruptcy trustee will use to review your case. The trustee will also ask you questions about your petition. Your bankruptcy attorney will either meet with you and ask questions or have you fill out a packet with a bunch of questions to help him prepare your bankruptcy petition.

10. Trustee

The bankruptcy trustee is an attorney appointed by the Court to represent the bankruptcy estate. This effectively means he represents all your creditors. His job is to collect as much as he can from the bankruptcy estate, liquidate it, and distribute the funds to the creditors. The trustee is like opposing counsel in your bankruptcy case.

While a short list like this can be helpful, there is no substitute for competent legal bankruptcy counsel.

1 Fargo is a great movie and I highly recommend that you watch it. Watch it on VidAngel and filter out the content you don’t want.

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What is the §341 Meeting of Creditors?

Most people only have to attend one meeting when they file a bankruptcy which is called the Meeting of Creditors. This meeting is outlined in 11 U.S.C. §341 so bankruptcy attorneys often call it the “341 meeting” or simply a “341”. Normal non-attorney folks just call it the “Meeting of Creditors”.

22 Meeting

When does the Meeting of Creditors take place?
This meeting will be set by the Court and it usually occurs between 4 to 6 weeks after the date of filing. The Court will mail you a notice with the date, time, and place but your attorney will probably tell you as well.

Where does the Meeting of Creditors take place?
There are four locations in Utah where these meetings take place. Usually your meeting will be assigned to the location nearest the home address you listed on your bankruptcy petition. The addresses to all four locations are listed below.

Federal Building
324 25th St.
Room 6026
Ogden, UT 84401

Ken Garff Building
405 S. Main Street
Suite 250A or 250B
Salt Lake City, UT 84111

Provo City Library at Academy Square
550 N University Ave
Room 308
Provo, UT 84601

Washington County Boulevard Office Building
87 N. 200 E.
3rd Floor
St. George, UT 84770

What do I need to bring to the Meeting of Creditors?
I covered this in another post but there are four things you need to bring:

1. Driver’s License
2. Social Security Card (or other proof in the form of a document not prepared by you with your full social security number listed on the document, like a W-2)
3. Most recent pay stub (the last pay stub you received before the Meeting of Creditors)
4. Bank statements covering the month of your filing date

What happens at the Meeting of Creditors?
You should arrive at least 15 minutes before your scheduled time so that your attorney can meet you there and discuss your case if he needs to. You will then go into the room with your attorney where the meeting will be conducted. Although your case will be assigned to be heard during a 1-hour block with a number of other people, usually your case will last only 10 minutes.

The trustee will go through his list and call the names of the cases for that time. When your name is called your attorney will go with you and will sit right next you in the seats upfront. The trustee will then ask you questions about your case and the petition we filed. Answer the questions truthfully and accurately. If you don’t know the answer then you can defer to your attorney. Below is a list of some of the more common questions the trustees ask:

· whether you have read through, understand, and signed your petition
· whether the information listed on your petition is true, complete, and accurate to the best of your knowledge
· whether you read the bankruptcy information sheet
· whether you have listed all your property in your schedules and whether you have listed accurate values
· whether you have transferred any property in the last two years
· whether you have repaid any of your creditors within the three months prior to your bankruptcy
· whether you have repaid any relatives or close friends in the last year
· whether you have sold or given away any property or transferred any money in the past several years
· how you determined the value of your property listed in your paperwork
· whether your income is accurate in your schedules and on your “Means Test”

After the trustee asks you questions about your petition, he will then ask “are there any creditors with questions?”. At this point any of your creditors may come forward to ask you questions. Most of the time there are no creditors with questions. If you owe the State of Utah money then the Utah State Tax Commission will be sure to show up. If you have purchased something from RC Willey you can bet that they will be there. But for most creditors it’s not worth paying someone to appear at the meeting because they are not likely to recover anything.

Once the trustee and the creditors have finished asking questions then you are free to go. Sometimes the trustee will ask for some additional documentation and if he does then get that to your attorney ASAP so he can get it to the trustee.

Should I be a nervous Nellie about the Meeting of Creditors?
No, you should not be a nervous Nellie about the Meeting of Creditors. There is no reason to be nervous. The Meeting of Creditors is not held in a Court nor is it before a judge. You will be placed under oath and are required to answer truthfully. The reality is this—if you have been honest with your bankruptcy attorney and all your financial information is provided in your petition then you really have nothing to hide.

So, just tell the truth and you will be fine. Trust me, I’ve been to a gazillion of these and it’s really not as bad as most people picture it in their minds.

How should I dress for the Meeting of Creditors?
It actually surprises me how few people ask me the question. However, it doesn’t really matter how you dress in my opinion and I don’t think the trustees care either. I’ve seen a variety of attires ranging from the dingiest jeans to expensive and fancy suits. Again, I honestly don’t think it matters how you dress.

What happens if I don’t attend my Meeting of Creditors?
If you don’t attend your Meeting of Creditors then you have made a huge mistake. If you don’t go to your 341 Meeting your case will be dismissed. You will not receive a discharge of your debts and the automatic stay will no longer be in effect. If your case is dismissed you can still file again but you will have to pay the filing fee again and the automatic stay is limited for repeat filings. The point is this: DO NOT MISS YOUR MEETING OF CREDITORS! If for some reason you have a scheduling conflict that you cannot resolve, contact your attorney as soon as possible so that he can try to reschedule the date.

If you have more questions about the Meeting of Creditor be sure to ask your attorney. Bankruptcy attorneys sometimes gloss over the details of the Meeting of Creditors simply because there are so many things they could tell you but they don’t have the time and you don’t really need to know everything they could tell you. But if you have more questions, ask your attorney and he should be able to give you an answer.

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What are my options for paying my bankruptcy filing fee?

Short answer: (1) pay in full, (2) pay in installments, or (3) apply for a fee waiver.

1. Pay in full21 Cash Register

This is the easy option for both me and for the client. When you make a payment to my firm for the attorney’s fees you also make payment for the filing fee. Paying in full makes it easier for me because I don’t have to worry about reminding the client to pay the filing fee. It’s also easier for the client because there is nothing else you have to do.

2. Pay in installments

Coming up with the money for attorney’s fees can be difficult when you are considering bankruptcy. Fortunately, the Court allows you to pay the filing fee in three installments. You don’t even have to pay the first installment when you file.

What the Court does require is that you make your first payment two weeks within two weeks of filing, the second payment within two weeks after the first payment, and the third payment within four weeks of the second payment.

Let me use an example. Let’s say you filed chapter 7 bankruptcy on Monday, February 1, 2016. The total amount for the filing fee is $335.00. Your first payment is due on or before February 15, 2016. Your second payment would be two weeks after that, on Monday, February 29, 2016, Leap Day (watch out for Leap Day William). Your third and final payment would be due four weeks later on Monday, March 28, 2016.

Below is a table showing how this works.

Payment Date Amount
File Bankruptcy February 1, 2016 $0.00
1st Payment February 15, 2016 $110.00
2nd Payment February 29, 2016 $110.00
3rd Payment March 28, 2016 $115.00

3. Apply for fee waiver

The last way to pay for your filing fee is to not pay at all. If you meet the guidelines then you file what is called the “Application to Have the Chapter 7 Filing Fee Waived”. This is only available to chapter 7 debtors; it is not available to chapter 13 debtors.

There are several factors the Court considers when deciding to grant or deny your application for fee waiver. The most important factor, however, is your income. If your monthly income is 150% or less of the poverty level for the number of people in your household then the Court will likely grant your application for fee waiver. I covered this in more detail in an earlier post.

Talk to your attorney about which payment method is best for you.

Posted in Bankruptcy, Chapter 13, Chapter 7, Court Filing Fee, Fee Waiver, Fees, Filing for Bankruptcy | Tagged , , , , , | Leave a comment

How do I pay my bankruptcy filing fee to the Court?

How do I pay my bankruptcy filing fee to the Court?

Short answer: pay by phone or pay in person at the bankruptcy court.

20 Court

When I meet with new bankruptcy clients I always give them a few documents that explain several things. I get asked a lot of repeat questions and most of the answers to these questions can be found on the documents I give to my clients. One of those questions that I get frequently is how do I pay my filing fee?

There are two ways to pay your filing fee:

1. Pay by Phone

You can call the Court on the phone and pay by debit card. The Bankruptcy Court phone number is 801-524-6687.

2. Pay in Person at the Court

You can go to the Courthouse and pay in person. The Bankruptcy Court Clerk’s office is located on the 3rd floor. The address is listed below.

Frank E. Moss, U.S. Courthouse
350 South Main Street, #301
Salt Lake City, Utah 84101

I always tell my clients that it is their responsibility to pay the filing fee. If you do not pay the filing fee on time then the Court will dismiss your case. Once your case is dismissed you can file again but your attorney might ask for more fees because it will take him more work. You will also have to pay the filing fee in full again.

It is your responsibility—not your attorney’s—to pay the filing fee. Save yourself, and your attorney, a headache and pay your filing fee on time.

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How do I get a free credit report?

How do I get a free credit report?

Short answer: go to www.annualcreditreport.com and request a free credit report.

19 creditOne of the most important things you need to do when preparing for a bankruptcy is to identify all your creditors. You are required to list all of your debts and creditors on the bankruptcy petition. I’ve had a number of clients ask me ‘how do I identify all of my creditors?’

The best place to start is with a credit report. Credit reports are not perfect and they don’t list all of your debts but for most people the credit report will include most of your debts. There, however, are some items that are usually not reported on your credit report. Pay day loan companies, for example, generally do not go to the effort to report these loans to the credit bureaus. Small businesses also rarely report debts. That is why I recommend to my clients that they keep a stack of all the bills and legal documents they have received.

Is it your bankruptcy attorney’s job to identify all your debts? People ask me this all the time and the answer is ‘no’. Not only is not his job, it’s also impossible for your attorney to identify all your debts. Your bankruptcy attorney can pull a credit report for you but, as I mentioned before, not all debts will be listed on your credit report. The person who knows your debts best, is you.

I always pull a credit report for my clients for a couple of reasons. First, I want to be sure I can identify as many debts as possible. Second, people often don’t keep track of lawsuits or judgments filed against them. Third, and most importantly, I can import all the data from the credit report into the software I use to create the bankruptcy petition which saves me huge amounts of time. As a side note, years ago, when I was a mere legal clerk, I used to manually enter in the data from credit reports into the computer. It was horrible. My eyes and my fingers hated me for it.

Although I pull credit reports for my clients, I encourage them to get and print out a copy of their credit report for our initial consultation. It helps both me and my clients figure out what debts they have.

Once a year you can order your free credit report from www.annualcreditreport.com. It’s a good idea, whether you are considering bankruptcy or not, to review your credit report to make sure there are no errors.

Posted in Bankruptcy, Bankruptcy Attorney, Chapter 13, Chapter 7, Credit Report, Payday Loans | Tagged , , , , | Leave a comment

Can I keep the items I bought from RC Willey when I file for bankruptcy?

Can I keep the items I bought from RC Willey when I file for bankruptcy?

Short answer: yes, if you want keep the item but you have the option to surrender the item.

18 RC Willey

About 4 to 6 weeks after you file any chapter of bankruptcy, you are required to attend what is called the “Meeting of Creditors”. At the Meeting of Creditors, the trustee will ask you questions about your bankruptcy petition. The bankruptcy trustee is an attorney appointed to represent the creditors in your case.

After the trustee has asked you some questions about your petition, he will ask “are there creditors with questions?” at which point any creditor can ask you questions. I would say a good three-quarters of my cases have no creditors that appear. When a creditor does show up it is generally the IRS, the Utah State Tax Commission, or RC Willey.

“Why does RC Willey show up to the Meeting of Creditors when no other creditors show up?” RC Willey tends to be a little more aggressive, for better or for worse, than other creditors. When you purchased a piece of furniture or any item from RC Willey on credit, RC Willey will retain a secured interest in that item, similar to the secured interest a lender has in your car or your house.

If for some reason you default on your loan, RC Willey has a right to take back the item that was sold to you, and they like to enforce this right. The reality is, however, they don’t want to take the item back from you. They want you to pay for the item. It is unlikely that RC Willey will recover more from acquiring the item and selling it at a discount than they will if you keep the item and pay them.

So what options do you have when you have purchased something from RC Willey? There are usually three options.

Option 1: Surrender the item

If you don’t care to pay for the item or it is a crappy item, you can tell RC Willey that you would like to “surrender” the item. Surrendering the item means you let RC Willey come take the item from you and whatever deficiency is left will be discharged in the bankruptcy.

Option 2: Reaffirm the debt for the full amount you owe

This is RC Willey’s preferred option. I always tell my clients, creditors care about one thing––collecting money. You do have the option to reaffirm the debt. When you file a bankruptcy, your contract with RC Willey is terminated. Reaffirming the debt means that you will voluntarily take on that debt again. If you reaffirm for the full amount, RC Willey will lend you credit in the future.

Option 3: Reaffirm the debt for fair market value

This option is usually the option I recommend to my clients. People generally like the items they purchased from RC Willey and would like to keep them. You do have the option of reaffirming the debt for the market value of the item. This amount is generally about half the amount you owe on the item, although it varies depending on the item.

The downside of reaffirming for fair market value is that RC Willey will NOT lend you credit in the future. For most people, this is not the end of the world. While I personally like RC Willey and I have purchased from them multiple times in the past, there are plenty of other furniture stores that WILL lend you credit.

What if I want to keep some of the items I purchased from RC Willey but not all of the items?

You can pick and choose which items you would like to reaffirm. Let’s say you really like a dining room table you purchased from RC Willey but you don’t like the sofa you purchased. You can reaffirm and keep the dining room table and surrender the couch.

What if I do not have the item?

Occasionally I will have a client tell me that they no longer have the item they purchased from RC Willey. I have heard all kinds of stories of what happened to items purchased from RC Willey from family members taking the items to foreign countries to ex-boyfriends and ex-girlfriends who have disappeared with the items. What happens then?

RC Willey has two choices––give up or file a suit for fraud against you. I say they have two choices but in every case I have dealt with RC Willey they just give up. Suits for fraud are rarely filed and usually involve tens of thousands if not hundreds of thousands of dollars of debt. Any claim RC Willey files against you is not a secured claim but rather an unsecured claim. After all, they cannot expect you to surrender an item you do not have.

Posted in Bankruptcy, Bankruptcy Attorney, Chapter 13, Chapter 7, Creditors' Rights, Reaffirmation Agreements | Tagged , , , , , | Leave a comment