SubscribeAll of your debts are included in the bankruptcy, but some of them are treated a little different than the others. The bankruptcy removes any personal liability you have for the mortgage accounts. The lender still has a lien against the property, but their only option if you fall behind on the payments is to foreclose. They cannot sue you for any deficiency or take any other actions against you personally.
As long as you keep making the payments on time, you can keep the house just as you did before the bankruptcy. The only difference now is what the lender can do if you can’t make the payments and fall behind. Most lenders will not report your payments (on-time or late) to the credit reporting agencies after the bankruptcy. However, you can keep records or copies of your payments and send the information in to the reporting agencies to make sure the on-time payments are shown.
What Debts are Included in a Bankruptcy?
Credit Reports after Bankruptcy Discharge
Debts that continue to be reported incorrectly or are listed as due after discharge can harm your fresh start. This guide discusses how to verify that the discharge is correctly reflected in your credit reports and how to challenge inaccurate information.
1) Obtain copies of your credit reports after you receive your discharge.
You should check your credit reports to make sure that the debts discharged in your bankruptcy are being reported correctly. You are entitled to one free copy of your credit report per year from each of the national reporting agencies. The three nationwide consumer reporting agencies have set up one central website through which free annual reports can be ordered at www.annualcreditreport.com or you can call 1-877-322-8228. If you have already used your free reports for the year, you can purchase credit reports directly from the reporting agencies or through third-party companies. However, you should be cautious and read the fine print for any third-party company because there may be additional or recurring charges. Some states also have laws that require free credit reports or states may place limits on the amount that can be charged to their residents.
2) Is your bankruptcy discharge accurately reflected?
The credit reporting agencies may report your bankruptcy filing for 10 years. Other information regarding your debts, including late payments prior to filing bankruptcy, may be reported for 7 years. However, any debts that have been discharged in bankruptcy should be reported as having a zero balance. You may also see a notation that the debt was “included in bankruptcy” or “discharged in bankruptcy.” Look out for discharged debts listed with a balance, late payments or other activity recorded after the bankruptcy filing, and discharged debts that may have been bought by a collection agency and reported incorrectly as incurred post-filing. Other inaccuracies could relate to the bankruptcy itself, including incorrect chapter, filing date, or case information.
3) Is all of your other debt information correct?
You should also look for accounts that do not belong to you or other incorrect information on your credit report. There is no reason your credit should be harmed by someone else’s account or information that is simply wrong.
4) Dispute inaccurate information.
If you dispute the accuracy of any information that a credit reporting agency has in its file, you can ask the credit agency to reinvestigate. This request should be made in writing using the agency’s dispute form or your own letter. You can find a sample dispute letter from the FTC at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm. You should include copies of supporting documents, including your discharge order, and keep a copy of whatever you send. You might want to send the dispute by certified mail with return receipt requested. Depending on the agency and the type of dispute, you may be able to submit a dispute through the agency’s website. However, it can sometimes be harder for you to keep records of your dispute if you do so.
5) Follow up on any disputes.
The agency must reinvestigate within 30 days by asking the source of the information to respond to your dispute. If the source cannot or does not verify the disputed information, it should be removed from your credit report. You should also receive a response in writing detailing the result of the dispute. If you disagree with the results, you may also submit a short statement in writing telling your side of the story. In all future reports, the credit agency must note your dispute. In some cases, after you have followed the dispute procedures, you may need to retain legal counsel or file a lawsuit to have the incorrect information removed.
6) No Legal Advice
Please note that although this answer may provide information concerning potential legal issues, it is not a substitute for legal advice from qualified counsel. You should consult an attorney for individual advice regarding your own situation. Answering this question does not create any attorney-client relationship between you and Kelly Zinser, Shareholder at Olenicoff & Zinser, PC in Irvine, California. For more information on bankruptcy, please see our website.
Reaffirmation Guide Part I – Reaffirmation and its Alternatives
What is a reaffirmation?
When you reaffirm a debt you agree to be liable for that debt even though it would otherwise be discharged in your bankruptcy case. You can reaffirm the debt under the original contract terms, or in some cases you may be able to negotiate a different interest rate or principal amount.
Reaffirmation agreement terms
Many lenders take the position that they will only offer a reaffirmation agreement on the original contract terms. Some lenders will offer better terms on severely underwater or low value vehicles. A reaffirmation agreement is an agreement and, like all agreements, both parties must agree to be bound.
Which debts should you reaffirm?
The vast majority of reaffirmations concern vehicle loans in consumer cases. You can reaffirm other debts, but it is usually not advisable unless there are special circumstances. You should consult with a local attorney if you are considering reaffirming a debt other than a vehicle loan.
First alternative – surrender
There are three alternatives to reaffirmation. First, you can surrender the secured property to the lender and the debt will be discharged. This is usually preferable when you owe a large amount or your vehicle is worth much less than you owe. In that case you can usually go out and get another vehicle for less money or make other transportation arrangements that are a better fit for your finances.
Second alternative – redemption
The second option is redemption. If your vehicle is worth much less than you owe, you can redeem the vehicle by paying its current value and you will not be liable for the balance of the loan. The downside to this option is that you will usually have to pay the lender in a lump sum. There are companies that provide redemption loans for this purpose, but the interest rates tend to be very high and you may not end up saving much money.
Third alternative – “ride through”
Also called “retain and pay,” “ride through” may be an option with some lenders and in some areas based on local law. Under this option you keep making payments on the debt and keep the vehicle. If you fall behind the lender can still repossess, but they can not pursue you for any deficiency, which they would be able to do if there is a reaffirmation agreement in place. Regardless of whether you have the right to “ride through” under the law in your area, some lenders will agree to this type of arrangement because it is a better business decision for them to keep receiving payments on the full loan amount. However, this is a handshake agreement and the lender could change their policy in the future and repossess even if you are current on payments. Other downsides to this option are that some lenders will not report your on-time payments to the credit reporting agencies or allow you to have automatic payments or online access to your account.
Disclaimer
Please note that although this legal guide may provide information concerning potential legal issues, it is not a substitute for legal advice from qualified counsel. You should consult an attorney for individual advice regarding your own situation. Providing this legal guide does not create any attorney-client relationship between you and Kelly Zinser, Shareholder at Olenicoff & Zinser, PC in Irvine, California. For more information on bankruptcy, please see our website.
Reaffirmation Guide Part II – Deciding Whether to Reaffirm Your Vehicle Loan in Bankruptcy
Step One – Can you afford your car?
You may want to reaffirm a secured debt if the creditor offers you better terms or you want to keep the property and you believe you will be able to make the payments. You should only reaffirm a debt if you can afford to pay it without creating an undue hardship for you and your family. It may be helpful to look at your Schedules I & J and think about how you will be able to make the payments and meet your other obligations as well.
Step Two – Do you need the vehicle?
It may be that your vehicle was a great fit for your finances and lifestyle when you purchased it, but now the payments have become burdensome. If your vehicle is worth much less than you owe, you may also be able to go out and buy a replacement at a much lower cost. You may also be able to make alternative arrangements such as borrowing a vehicle from a friend or relative, buying a less expensive vehicle for cash, or taking public transportation. Sometimes people think that they will have to reaffirm because they will not be able to get a new loan anytime soon after bankruptcy. This may be true in some cases, but you should fully investigate your options before making the decision to reaffirm.
Step Three – Are any of the alternatives a better option for you?
There are alternatives to reaffirmation. Please refer to my previous legal guide (linked below) regarding these alternatives. A reaffirmation is more certain than “ride-through” and the creditor will continue to report your on-time payments to the credit reporting agencies and allow you to use automatic payments and online account access. However, you will be liable for that debt even though it could have been discharged.
Making the Decision
The decision to reaffirm is a personal one that you must make. Your attorney can provide you with advice on the various options, but you will need to make the final decision on which option is the best fit for you and your family.
Disclaimer
Please note that although this legal guide may provide information concerning potential legal issues, it is not a substitute for legal advice from qualified counsel. You should consult an attorney for individual advice regarding your own situation. Providing this legal guide does not create any attorney-client relationship between you and Kelly Zinser, Shareholder at Olenicoff & Zinser, PC in Irvine, California. For more information on bankruptcy, please see our website.
Reaffirmation Guide Part III – You’ve Decided to Sign the Reaffirmation Agreement, What’s Next?
Filling out the agreement
The official forms for a reaffirmation agreement can be confusing, and there may be additional local forms required in your area. Your attorney or the lender will usually provide you with a copy of the required forms and an explanation of the areas you need to complete. If you are representing yourself, you should take your time and go through the agreement slowly to make sure you fill in all of the required information. You should complete all of the information requested on the cover sheet if it is provided. However, you will not sign under the filer’s certification because this is signed by the person actually filing the form with the court, which is usually the lender.
Deadline for filing
If you decide to reaffirm, you will sign a reaffirmation agreement and usually you or your attorney will forward the agreement to the creditor for their signature and filing with the court. A reaffirmation agreement must be filed within 60 days of the first date set for the meeting of creditors. Therefore, it is important to return the agreement to your attorney or the creditor within plenty of time for the creditor to process and file it if you want to make sure it is valid. We usually recommend that reaffirmation agreements are returned to our office 20 days prior to the deadline for filing with the court.
Hearing on the reaffirmation
You may or may not have to attend a hearing on the reaffirmation depending on local practice and whether your attorney can sign the reaffirmation agreement. If you are representing yourself you will usually need to attend a hearing where the judge will approve or deny the reaffirmation. The judge will primarily be concerned with whether you understand the significance of the reaffirmation agreement and whether you can afford the payments without creating an undue hardship.
Getting out of the agreement after it is signed
You can rescind or revoke a reaffirmation agreement, but you must do so quickly! You rescind by giving notice of rescission to the creditor before your discharge is entered or within 60 days of filing the agreement with the court, whichever is later.
Disclaimer
Please note that although this legal guide may provide information concerning potential legal issues, it is not a substitute for legal advice from qualified counsel. You should consult an attorney for individual advice regarding your own situation. Providing this legal guide does not create any attorney-client relationship between you and Kelly Zinser, Shareholder at Olenicoff & Zinser, PC in Irvine, California. For more information on bankruptcy, please see our website.
California Expands Mortgage Deficiency Protections in Short Sales
Last year, California passed a law that prohibits first mortgage holders from pursuing individual homeowners for a deficiency after a short sale. However, this meant that second and third mortgage holders were still free to sue the homeowner for the balance due even if they consented to the sale, unless the short sale documents themselves included some protection. Senate Bill 458, which just became law in July, fixes this loophole and extends the prohibition to cover short sale deficiencies from all residential mortgages, and not just the first mortgage. It also prohibits a lender from requiring the homeowner to make a cash contribution in order to complete a short sale.
Unfortunately, there is no way to compel a bank to agree to a short sale, and the law applies only to short sales and doesn’t affect foreclosures. Because this law only applies to short sales, I worry that it may make short sales more difficult. This law is a step in the right direction. Now only if Sacramento could fix the deficiency issues when there is a foreclosure, then that would really level the playing field.
The 1099-C: Cancellation of Debt Income
Around this time of year, many of you are preparing your taxes. You may have received 1099-C forms from your lenders. Form 1099-C reports income due to the cancellation of debt. Normally, any debt that is cancelled or forgiven is reported as income for income tax purposes. However, debt discharged through bankruptcy is one of several exceptions to this rule.
One important caveat is that if the lender has already forgiven and cancelled the debt prior to the bankruptcy filing, the discharge will not exclude it from income. In that case, you will need to look to other exceptions such as the insolvency exception (cancelled debt is not included in income to the extent liabilities exceed assets when it is cancelled).
Lenders are not required to submit this information for many debts discharged in bankruptcy. They are required to submit Form 1099-C if their records show that the debt was incurred for business or investment purposes. It may also be that the lender has not reflected the bankruptcy in all of its records by the time tax forms are due, or the form is sent out due to an abundance of caution in meeting IRS reporting requirements. No matter what the reason, if you receive a 1099-C form you should give it to your tax preparer to ensure that it is reflected properly in your tax returns for that year.
Save the Date for the NACTT Annual Chapter 13 Seminar
The National Association of Chapter 13 Trustees (NACTT) holds their annual seminar every summer in different locations. This summer it will be in Anaheim, California on August 3 – 6, 2011. This seminar is open to anyone who has anything to do with Chapter 13 work. It is also an excellent opportunity to network and share ideas with your fellow Chapter 13 practitioners.
This particular one looks like it will be especially good. Some of the speakers may include our own Dean Chemerinsky, Frederick Clement, Barry Russell, Professor Nancy Rappaport, Professor Jean Broucher, Judge Pappas, Judge Steve Rhodes and Judge Roger Efremsky – just to name a few.
It looks like we will be getting more details in March 2011. I will keep you all posted!
Kelly’s Podcast on Chapter 7 and Chapter 13 Bankruptcy
So, Avvo recently interviewed me for a podcast on the basics of consumer bankruptcies. Although it is never fun to listen to your own recorded voice, I have listened to it and I think there is some good information in there. And a lot of it is the same information that I go over with clients in initial consultations. Here are the questions that I answer:
- When filing for bankruptcy, most consumer have two choices – Chapter 7 or Chapter 13. Before we get into each one, what is the main difference between the two?
- What makes someone best suitable to file for Chapter 7 bankruptcy? What are the advantages of doing so?
- What is the expected process for filing for Chapter 7 – do you need a lawyer?
- What about Chapter 13 bankruptcy – who most often files for Chapter 13 and what are their advantages?
- What is the expected process for filing for Chapter 13 – do you need a lawyer?
- Obviously filing for bankruptcy impacts your credit score, how long does it usually take to recover? Will I ever be able to get a credit card, or buy a home or car in the future?
I will give you a warning, it is a long podcast (I had a lot of ground to cover) so you really do have to be interested in bankruptcy to listen!
New Credit Card Company Tricks
The Wall Street Journal recently had an interesting article on the different ways credit companies are trying to get around the new credit card laws. It looks like some of the credit card companies are already violating the rules. Let’s hope the new Consumer Protection Agency will have some power to stand up to help even the playing field!