Recent Blog Posts

Credit Scores After Bankruptcy

Soo J. Hong — Wed, 23 Feb 2011 18:47:00 GMT

Clients almost always ask about the affect of bankruptcy on their credit score. Most often, they already assume that bankruptcy will ruin their credit for a long time but this may not be the case.

A good credit score comes from paying bills on time. That is the one and only way to improve your credit score. Most often, bankruptcies are filed because people have not been current on their bills and continuing to not pay bills on time will wreak havoc on your credit rating. Bankruptcy prevents default payments on bills and thus, can be a means to rebuilding your credit score. In some cases, there may be a boost in credit scores after filing bankruptcy. Usually, the lower your score is at the time of filing, the biggest jump you will see and with most people who file, they're usually at the lower credit score range.

Here's how it works. Credit scores are determined by comparing people in the same financial situation. Thus, those who file bankruptcies will be compared to other bankruptcy filers. Thus, because you are not being compared to those with a perfect credit score, filing bankruptcy won't have too great of an effect on your credit score. When bankruptcy is filed, the balances of all debts included in bankruptcy will reflect $0 balance on your credit report and will be notated as "included in Chapter 7 bankruptcy or Chapter 13 plan." The type of bankruptcy you file does not make a difference. They both have the same affect on your credit score.

Typically, the bankruptcy will stay on your credit report for about 10 years. You will receive higher interest rates and in some cases, a co-signer will be required for some loans as long as you have the bankruptcy included in your credit report. However, it is possible to get financing for cars or even home loans. Most home loans, including FHA loans, are offered two years after discharge in bankruptcy. Some car dealerships will offer financing as soon as few months out of bankruptcy.

Thus, filing bankruptcy will not be the end to having credit. It's a means to start over and reestablishing your credit. Many find it a good means to prepare for the future by getting rid of their financial mistakes of the past and rebuilding to have financing opportunities in the future.

What is a Charge Off?

Soo J. Hong — Tue, 15 Feb 2011 19:23:00 GMT

Posted By Soo J. Hong

There are many misconceptions about what a charge off really is. A Charge Off is when the lender removes a delinquent account from its accounting books thus resulting in the lender taking a loss on the account. Thus, it's basically an accounting term stating that the lender will no longer collect the debt. This, however, does not get rid of the debt itself. The borrower still owes the debt, but the lender just has given up collecting on the debt. However, once an account is charged off, it can be sold to a third party like a collection agency and the collection agency can still pursue the borrower for the debt, often times leading to a lawsuit. If the collection agency is successful in collecting the debt, then the collection agency gets to keep the money collected, thus, they will try hard and use any means to collect the debt.

Charge offs are the choice of the lender. Even if the borrower intends on picking back up on the payments soon, the lender can still charge off the account. Filing bankruptcy will discharge the charged off debt thus, preventing the lender or any collection agencies from pursuing the debt further. Charge offs can happen after the borrower files bankruptcy. Lenders have 60 days to charge off accounts after bankruptcy. Thus, again, charge off is just an accounting term for lenders and does not affect whether the borrower still owes the debt. Only bankruptcy will allow you to discharge the debt.

As far as your credit score, charge offs have one of the worst impacts on your credit score. A charge off basically states that you have a history of not paying your bills. Additionally, the debt is still outstanding so there is no benefit of a charge off to the borrower. A successful bankruptcy, however, will allow you to discharge any charged off debts and start you on a path to building your credit.

Tidbits on single and joint bankruptcy filings when married

Soo J. Hong — Wed, 21 Jul 2010 04:52:00 GMT

Only lawfully married couples can file a joint bankruptcy. Even if a couple is lawfully married, the Defense of Marriage Act (DOMA) prevents same sex couples from filing a joint bankruptcy.

A married couple can decide to file jointly or individually. If a married couple files individually, the other spouse will not be affected. Thus, if most of the debt is in one spouse’s name, then it makes sense for that spouse to file alone. However, if the debt is a joint debt but only one spouse files, the creditor can come after the other spouse. In a Chapter 13, the creditor will not be able to collect from the other spouse until the discharge but the creditor can go after the non-filing spouse after the discharge.

We are getting divorced and we need to file for bankruptcy relief, help!

Soo J. Hong — Wed, 21 Jul 2010 04:43:00 GMT

Filing bankruptcy in the middle of a contested divorce is usually not a good idea. Debt awarded in a divorce decree is not dischargeable in a Chapter 7. It all comes down to whether the debt is defined as support. As long as the debt is NOT defined as support, it can be defined as dischargeable debt in bankruptcy. Thus, make sure the debts are not included in the final decree, that way, either party may file for bankruptcy if necessary.

Another strategy is to file for joint bankruptcy before the divorce, especially for couples with a significant marital debt. That way, the couple can discharge the martial debt and prevent fighting the other’s effort to discharge martial debt after the divorce.

Divorce can also help in eligibility for a Chapter 7 bankruptcy. Income may shift after a divorce due to child support or alimony payments, thus making it easier to qualify for a Chapter 7 bankruptcy. The Trustee will usually ask for recent divorce decree and will question a divorce that seems to be sham. If the Trustee sees the division of property in a divorce to be too neat, such as one spouse waiving all alimony and receiving all property, then the Trustee will challenge the divorce as a sham.

Divorce and Bankruptcy: Domestic Support Obligations v. Property Settlement

Soo J. Hong — Wed, 21 Jul 2010 04:37:00 GMT

Domestic Support Obligation (DSO), child support and alimony, are not dischargeable under any type of bankruptcy and must be paid. Under bankruptcy law, DSO is defined as any debt 1) incurred before or after a bankruptcy filing 2) that is owed to or recoverable by a spouse, former spouse, child or governmental unit 3) in the nature of alimony, maintenance or support and 4) established pursuant to the terms of a divorce decree, separation agreement, property settlement agreement, court order or administrative determination. Payments of domestic support obligations before filing will not be “voidable” as preferential payments.

DSO is different from property settlement. Property settlement is an obligation to a spouse, former spouse, or child of the debtor that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree, or other court order, or a determination made under state or territorial law by a governmental authority. Property settlement is not dischargeable under Chapter 7 but it is dischargeable under Chapter 13. Attorney fees and court services fees are held to be DSOs. Past due DSOs are not dischargeable unless they are paid in full under a Chapter 13 plan. A Chapter 13 discharge will not be entered unless and until a debtor certifies that all DSOs have been satisfied and that the debtor is current on all such obligations. DSO claims can also be satisfied against exempt property. Thus, even if properties under bankruptcy are exempt, the Trustee can sell the exempt properties and satisfy domestic support obligations.

Automatic stay does not apply to divorce or support actions filed in state courts. Thus, bankruptcy will not prevent the collection or establishment of current child support. The only thing the divorce court cannot do during bankruptcy is to make a final property division of property that is property of the debtor. However, the issue regarding domestic support, domestic violence, custody matters, and dissolving a marriage can be addressed without motioning the Bankruptcy Court to “lift” the stay. Filing bankruptcy does not affect the right to receive support. Thus, a debtor can pursue receiving support through wage garnishment or other collection means while in bankruptcy.

Debt awarded in a divorce decree is not dischargeable in a Chapter 7. A DSO creditor will receive notice from the Trustee of the rights to collect support and the most recent address of the debtor.

NSF Fees - Dischargeable?

Soo J. Hong — Mon, 21 Jun 2010 21:00:00 GMT

With the advent of electronic payments, fees for Non-Sufficient Funds (or NSF Fees) have become common. When consumers spend more than what is in their accounts, this can result in banks charging NSF fees. I often have clients that are concerned as to what would happen with the NSF fees and if they are dischargeable under bankruptcy.

In short, NSF fees are dischargeable under bankruptcy as unsecured debt. As long as the client incurred the fees without knowing that they were using more than what was in their accounts, then NSF fees can be discharged. The negative fees will be discharged and the bank account will be closed. One issue that may arise with NSF fees would be if the creditor believes that the client knew they did not have enough in the account but still wrote checks from the account. This could result in a separate lawsuit for writing bad checks and would have to be argued separately from the bankruptcy case to decide whether the NSF fees can be discharged.

In sum, as long as you inadvertently overdrew your account and incurred NSF fees, the fees will be dischargeable under bankruptcy.

An Explanation of the Reaffirmation Process

Soo J. Hong — Fri, 18 Jun 2010 13:29:00 GMT

When you file a Chapter 7 bankruptcy case, you will indicate in your petition whether or not you want to retain and reaffirm or surrender on your secured debts. When you decide to retain and reaffirm, the creditor must agree to offer you a reaffirmation agreement. Sometimes the agreement will be provided to your attorney's office but if it's not, it will be the client's responsibility to receive the reaffirmation agreement from the particular creditor. It is not a requirement to have the reaffirmation agreement signed even if it indicates so on the petition. However, without the reaffirmation agreement, the debt will be considered discharged on your credit report once you receive a discharge in the Chapter 7 case.

Once the reaffirmation agreement is signed, it will be sent to the Creditor. The Creditor will then file the agreement with the Court. However, there are instances when the Creditor does not file the agreement before the Chapter 7 case receives a discharge. In Georgia, as long as the reaffirmation agreement was "made" before the discharge, the attorney can file a Motion to Reopen and the Court will grant the Motion in order for the reaffirmation agreement to be filed. However, if it is determined that the reaffirmation agreement was NOT "made" before the discharge, then the Court will NOT allow the case to be reopened, thus, that specific debt will be discharged under bankruptcy. (In re Roselyn Toweh, In re Arnold Eger). The Court will find a reaffirmation agreement to be "made" before the discharge if the agreement was signed, or if there was an oral agreement between the Debtor and the Creditor that the debt will be retained and reaffirmed prior to entry of discharge.