Credit Reports Won’t Show Judgments or Liens

Credit reports are changing! A better credit score may be right around the corner. Starting this week, some people will enjoy a credit score increase of up to 20 points. This is because the three major credit bureaus will enforce stricter reporting regulations.

What does this mean? Civil judgments and tax liens will vanish from most credit reports. This is because civil judgments and tax liens don’t carry enough identifying information to meet new credit reporting standards. You can expect that tax liens and civil judgments will no longer be recorded as part of your credit.

According to a report by Fair Isaac (home of the FICO score), about seven percent of Americans can expect an increase in their score due to the removal of judgments and liens from their file.

Why the Change?

The Consumer Financial Protection Bureau (“CFPB”) recently recently recommended changes to the major credit reporting companies.  The CFBP based their recommendations on frequent consumer complaints. In fact, the CFP reported that the number one consumer complaint was that credit scores often include inaccurate information.

Previous credit report standards left a lot of room for error. Credit reports often included civil judgments for other people. Surprisingly, civil judgments contain very limited identifying information.

People with inaccurate judgments on their credit reports will benefit the most from this change. However, consumers needs be aware that accurate court judgmenets might not show up on their credit reports in the future.

Other Changes Afoot

This isn’t the only major credit reporting change on the agenda.

Starting next month, credit bureaus will have to keep a closer eye on the public records they are reporting. Credit reporting agencies will update their information at least once every 90 days.

Starting in September, credit reports will no longer include medical debt less than six months old.

There is currently no plan to eliminate bankruptcies or foreclosures from credit reports.

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Co-Sign Debt Lawsuit (Don’t do it!)

People often co-sign debts without realizing that there can be severe consequences down the road. For instance, a lender can sue a co-signor if the primary borrower defaults. Read on to learn more about these insidious lawsuits.

Co-Signing a Loan is Very Serious

Co-signing on a loan for a friend or family member seems like a simple way to help. However, not everybody realizes that a co-signor is 100% legally obligated on the account. This means that a lender can legally collect the account from the co-signor in the event that the primary debtor defaults.

Lenders allow co-signors because it gives the lender an additional person from whom the lender can collect money. Some people mistakenly believe that they are merely lending their credit score to a loan application.

Co-signing a loan for a friend, distant relative, or boyfriend/girlfriend can be especially dangerous. You really do not want to get left holding the bag on a car loan for an ex. That just is not fair at all!

Lenders Can Sue You Over Co-Signed Debts

Let’s pretend that a debtor stops making payments on a car loan. You co-signed the car loan. The lender can legally go after both the original borrower and you as the co-signor. In fact, the lender doesn’t even need to sue the original borrower. A lender can file a lawsuit solely against the co-signor!

A co-signor doesn’t have very many defenses in court. The co-signor agreed to be liable on the loan. A co-signor can try to file their own lawsuit against the original borrower. But that is an expensive and time-consuming process.

The Easy Solution

The easiest solution to this problem is simple. A person should not co-sign loans! Lenders are giving less and less importance to co-signors on loans these days. This means that adding a co-signor to a loan only marginally increases the chance of the loan being approved. But as I discussed above, the consequences for a co-signor can be huge.

Bankruptcy might be a good option for a person facing a lawsuit over a co-signed debt. There is absolutely no realistic reason why a person should pay off a car loan for someone else.

Call my office today at (916) 333-2222 to discuss your bankruptcy options if you are being sued over a co-signed debt. 

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Credit Scores and Bankruptcy

Credit scores are important. Your credit score impacts your ability to pay for large purchases over time. Lenders will use poor credit scores to deny loan and credit card applications.

Bad credit will cost you money too. Lenders generally charge higher interest rates depending on credit score. Some service providers may even require you to pay a security deposit based on your credit score.

What hurts a credit score?

According to the Fair Isaac Corporation (FICO), there are five major categories that determine your credit score. The most important factor is your payment history, accounting for 35% of the calculation. Amount owed is the second biggest contributor with 30%. Length of credit history is 15% of the calculation, while credit inquiries and types of credit account for 10% each.

1. Payment History

Late payments on credit cards and loans can result in more than just late fees. If you are habitually late on payments, you could face a penalty increase in interest rate. After just 30 days, the late payment will be added to your credit report where it will remain for seven years.

If you decline to make payments altogether, creditors will charge off your account. Once charged off, you will no longer be able to use the credit card. You will also still owe the balance due. This is one of the worst hits your credit score can suffer. Similarly, if you fail to make payments on a loan, the account will default. This will be reflected on your credit score as well.

2. Amount Owed

The level of debt you have is measured by your credit utilization, or the ratio of your credit card balances to their respective credit limits. Having high credit card balances can demonstrate irresponsibility with credit, and cost you points in your credit score.

Ideally, all of your credit card balances will remain at or below 30% of their maximum limit. If you frequently max out your credit cards, this could adversely affect your score—even if you pay the balance off when the statement comes!

3. Credit History Length

The longer your credit history, the better your credit score. Once you cancel a card, the years of use are erased from your credit history. Canceling an old card will therefore make your credit history seem shorter than it actually is. You should hold on to old credit cards once they are in good standing.

Also, closing cards will raise your credit utilization—your overall balance remains, but you will have decreased your total maximum limit.

4. Credit Inquiries

Each time you submit an application for a credit card or a loan, you are authorizing the lender or business to access your credit report. The number of requests made is recorded and factored into your score. Be cautious about the number of loans and credit cards you apply for. Excess inquiries will reduce your credit score.

5. Credit Types

A diverse credit history signals responsible management of credit. Therefore, having only loans or only credit cards has the potential to hurt your score. When building credit, it is important to have an array of different accounts.

Like it or not, credit scores are a big part of life. Bankruptcy can help you get a fresh start with your finances. Call (916) 333-2222 to discuss if bankruptcy is a good option for you.

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If Student Loans Were Hard to Manage Before, They’re About to Get a Lot Worse

New data released on March 14 by the US Department of Education showed that in 2016, 1.1 million Federal Direct Student Loan borrowers defaulted. The data also shows that a total of $137.4 billion in student loan balances were in default.

Student Loan Collection Fees

Until a couple years ago, collectors of defaulted loans were permitted to charge as high as 18.5% in collection fees. These fees rapidly increased the already-enormous debt that caused the borrowers to go into collections in the first place.

The Obama Administration acted against this in July of 2015, issuing a memo to protect these borrowers. The directive prohibited guarantee agencies—state or private nonprofit agencies that administer the federal guaranteed loan program—from charging these high collection fees.

New President, New Rules

Just a couple days after the reported increase in student loan defaults, President Trump sent a letter telling the lenders to ignore the previous directive, clearing a path for them to charge outrageous fees on the defaulted loans.

While this new guidance will only affect borrowers who took out loans under the Federal Family Education Loan (FFEL), 4.2 million borrowers with FFEL loans were in default as of 2016 according to Market Watch.

In a letter to Secretary of Education Betsy DeVos, Senator Elizabeth Warren and Congresswoman Suzanne Bonamici urged the Department of Education to uphold the Obama-era ruling. The letter stated that the Department and Congress need to do more to protect borrowers.

Since these borrowers have already defaulted on their loans, they are obviously also unequipped to pay the accumulating collection fees. Our laws should encourage borrowers to cure their default. Excessive collection fees are unfair and only make student loans more unmanageable.

Bankruptcy Can Help Manage Student Loans

Chapter 13 reorganizes a borrowers finances, and will help manage the payment of delinquent student loans. Bankruptcy also stops the imposition of fees and interest on unsecured debts — including student loans.

The bankrutpcy court cannot discharge most student loans in a Chapter 7. However, a Chapter 13 reorganization can help borrowers get back on track.

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How Many Times May a Creditor Levy Your Bank Account?

A bank levy is when a creditor takes money directly from your bank account. How many times can a bank levy occur? The answer will very likely surprise you.

Bank Levies Only Happen After a Judgement

A creditor can only take money directly from your bank account if you give the creditor permission or they go through the levy process.

A creditor can only levy your bank account if the creditor has already obtained a court-ordered judgement. This means that the creditor sued you and won in a court of law. Only then will the court authorize a creditor to directly take money from a bank account.

Do not ignore lawsuits. Ignoring a lawsuit will almost certainly ensure that the creditor will obtain a judgement.

Creditors Don’t Have to Warn Before Levying

Many people mistakenly believe that a creditor is required to provide a warning before levying a bank account. This is not true for one very obvious reason. If a creditor had to warn a debtor prior to the bank levy, debtors would always drain their accounts before the levy hit.

A creditor does not need to provide advance notice before a bank levy. Therefore, if you know that a creditor has a judgement against you, you must not keep money in bank accounts until you resolve the debt.

A Creditor May Levy Your Bank Account More Than Once

A creditor can levy your bank account multiple times until the judgement is paid in full. In other words, you aren’t safe from future levies just because a creditor already levied your account.

Don’t Ignore a Bank Levy!

A bank levy can make it impossible to pay rent, buy groceries, or make a car payment on time. Obviously, bank levies are very serious. You can fight back against creditors that are involuntarily taking your money.

Please call Sacramento Bankruptcy Attorney Rick Morin at (916) 333-2222 to discuss strategies to stop bank levies dead in their tracks. 

 

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How to Get a Credit Card After Bankruptcy

I recently wrote articles on how to get a Mortgage and Car Loan after bankruptcy. This article will discuss your credit card options after bankruptcy.

Credit Cards Aren’t Bad At All

It is foolish to say that debt is bad, or that credit cards are bad. Used responsibly, credit cards can make managing your finances a breeze. Credit cards help spread payments on large purchases out over time. As long as the interest is reasonable, there is nothing wrong with financing a large purchase.

Paying off a credit card in full each month usually doesn’t incur any interest charges at all. I personally like having all of my purchases in one place. Another added benefit is fraud protection. Credit card companies are very easy to deal with if a card is lost or stolen. I certainly wouldn’t want my debit card account hacked into, and this is the reason why I almost never use a debit card. –

What To Look  For When Applying For a Credit Card

A recent bankruptcy filer should avoid high interest and excessive fees to the maximum extent possible. These are the cards that get people into a lot of trouble. Recent bankruptcy filers are usually flooded with credit card offers in the mail. Read the fine print carefully. You really want to know what you are getting into prior to applying.

I recommend starting with a secured credit card. A secured card will be easier to obtain right after bankrutpcy. And the account should have better terms than unsecured cards.

Not sure where to get a secured credit card? I recommend that you contact your bank. Since you already have a relationship with your bank, they should be willing to help you reestablish your credit.

Don’t Wait to Reestablish Your Credit

I strongly recommend that you start the process to reestablish your credit as soon as you are out of bankruptcy. No law prohibits a recent bankruptcy filer from quickly establishing credit after a bankruptcy case is over. Do not delay!

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How to Get a Mortgage After Bankruptcy

A very common question asked of me during a bankruptcy consultation is related to home loans after bankruptcy. Most people are surprised to hear that it is absolutely possible to qualify for a mortgage loan with a bankruptcy. Read on to learn more.

What Happens After a Bankruptcy Discharge

Most bankruptcy cases conclude with a bankruptcy “discharge.” This is the court order that prevents creditors from collecting on debts against a debtor.

Most creditors will close a debtor’s credit accounts after having received notice of a bankruptcy. This means that most debtors are left without access to any credit immediately following the conclusion of their bankruptcy.

Don’t worry. It is very easy to start reestablishing credit after a bankruptcy.

Don’t Wait to Reestablish Credit

Debtors are often flooded with offers for new credit cards and car loans after their bankruptcy cases end. This probably comes as a huge surprise. But think about it this way: lenders can’t make money off of people not utilizing their products. So there definitely is an incentive to give loans to people, even after a bankruptcy.

I strongly encourage my clients to take immediate steps after bankruptcy to reestablish their credit. There is no sense in waiting, especially if the debtor has plans in the future for a new home loan or other large purchase.

Waiting Period for a New Mortgage

In most cases, there is just a two year waiting period for a new home loan after bankruptcy. This means that a debtor only needs to wait two years after their bankruptcy to try to qualify for a new mortgage.

Former clients often call my office asking for copies of their discharge paperwork. They need this paperwork to show their mortgage lender during the application process. In all other respects, the mortgage process is the same as compared to an applicant that did not declare bankruptcy. Lenders consider recent credit history, income, and property details during the application process. Just like a normal mortgage loan.

The good news is that obtaining a new home loan after bankruptcy is much easier than many people anticipate.

Don’t let the fear of the unknown stop you from getting the fresh start that you deserve. Please contact my office at (916) 333-2222 to schedule a bankruptcy consultation at my office in Sacramento, California.

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Is Donald Trump Going to Change Bankruptcy Laws?

Sacramento Bankruptcy Lawyer Rick MorinAs you may have already heard, Donald Trump is just weeks away from being sworn in as the new President of the United States of America. This is not a blog about President-Elect Trump’s politics. Instead, I will discuss how President-Elect Trump may affect bankruptcy laws in this country.

Previous Efforts at Bankruptcy Reform

The last major changes to the Bankruptcy Code were enacted by a Republican Congress and President Bush in 2005. Known in the business as “BAPCPA,” the Bankruptcy Abuse Prevention and Consumer Protection Act materially changes bankruptcy laws for the first time since the 1980s.

Among other things, BAPCPA enacted the much-decried Means Test and lengthened the time between eligibility for Chapter 7 filings from six years to eight years. BAPCPA was strongly supported by major financial institutions and opposed by consumer groups. Many folks describe the 2005 law as the “best law money can buy.”

What’s Next for Bankruptcy Reform?

Just as in 2005, Republicans in 2017 will control both houses of Congress and there will be a Republican in the White House. Does that mean that significant changes are in store for bankruptcy laws?

President-Elect Donald Trump is an avid and frequent user of our nation’s bankruptcy laws. Unlike most regular people though, Donald Trump filed bankruptcies for his various corporations under Chapter 11 of the bankruptcy code. BAPCPA, on the other hand, mostly made changes to Chapter 7 and Chapter 13 of the bankruptcy code (chapters under which most “regular” people file).

Will President Trump succumb to pressure to materially change bankruptcy laws to make them even less favorable to regular debtors? We will have to wait and see. On the one hand, a President Trump will likely be a populist. On the other hand, President-Elect Trump is nominating a whole stable of billionaires to his cabinet. Will President Trump’s advisors really be able to understand what it means to face a bankruptcy? Only time will tell.

Don’t let uncertainties about the future drive your financial decisions. Please contact my office at (916) 333-2222 to discuss whether bankruptcy is right for you. 

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Top 3 Car Buying Secrets

Sacramento Bankruptcy Lawyer Rick MorinI have had occasion to review many car loans through my bankruptcy practice. I would like to share some of the wisdom that I have gained because car buying can be so difficult. This is especially true if you aren’t familiar with all of the tricks car dealers play.

1. You Don’t Have to Use Dealer Financing

Financing through the dealer can be very convenient, but it is far from your only option. As discussed below in more detail, your car dealer may have a financial interest in you utilizing their finance partners. This means that they might not be looking out for your best interest when it comes to finance arrangements.

I often recommend that a potential car buyer look for financing options away from the dealer. Often time the bank that you already have a relationship with will give you a car loan.

This is not to say that all dealer financing is bad. If you are buying a new car through a main line dealer, often times you can score below-market-rate financing. This is because the car dealer really wants you to buy their new car.

2. Pay Attention to the Details

Many car buyers get distracted by one thing: monthly payments. This is a huge mistake. Car dealers love padding their bottom line by charging extra fees, marking up add-ons, and not giving you a good price on the car. If you get stuck focusing on the payment alone, you can easily miss opportunities to save money.

Do some simple math at the negotiating table. If the dealer is proposing payments of $350 per month over 60 months, how does that compare to the actual cost of the car? You may be surprised by how much more the dealer is asking you to pay over time when compared with the purchase price of the car. Don’t fall into a bad deal by missing these details!

3. Dealers Can Markup the Interest Rate

Have you ever read that massive contract you sign when you finance a car through the dealer? Most people have not. There is often a clause in the contract that says that the dealer can assign your financing contract to a third party and earn a portion of the interest rate being charged.

What does that mean in simple terms? The dealer may have obtained financing for you through their bank at 5%. But they are telling you that they are going to charge you 8%. That 3% extra goes right into the dealer’s pocket. If you don’t ask, they will never tell you. But their contract gives them every right to do this.

Be a savvy consumer. Ask the finance person point blank whether they are marking up the interest rate. They cannot lie — this is called fraud. If they are marking up the rate, negotiate it down so you don’t have to pay more over time.

Bankruptcy can help get rid of a terrible car loan. Chapter 7 can get you a fresh start with your finances. Call my office at (916) 333-2222 if you have questions about bankruptcy in Sacramento. 

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Law Office of Rick Morin, PC. A 5-star law practice serving all of California. 

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