by David Streitfeld, New York Times, February 3, 2010

In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040. “People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”

After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.

New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.

. . .

The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance.

They are stretched, aggrieved and restless. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages.

“We’re now at the point of maximum vulnerability,” said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. “People’s emotional attachment to their property is melting into the air.”

. . .

“Since the beginning of December, I’ve advised 60 people to walk away,” said Steve Walsh, a mortgage broker in Scottsdale, Ariz. “Everyone has lost hope. They don’t qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old.” Mr. Walsh is taking his own advice, recently defaulting on a rental property he owns. “The sun will come up tomorrow,” he said.

The difference between letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call “house arrest.”

. . .

With prices now down by about 30 percent, underwater borrowers fall into two groups. Some have owned their homes for many years and got in trouble because they used the house as a cash machine. Others, like Mr. Koellmann in Miami Beach, made only one mistake: they bought as the boom was cresting.

It was April 2006, a moment when the perpetual rise of real estate was considered practically a law of physics. Mr. Koellmann was 23, a management consultant new to Miami.

Financially cautious by nature, he bought a small, plain one-bedroom apartment for $215,000, much less than his agent told him he could afford. He put down 20 percent and received a fixed-rate loan from Countrywide Financial. Not quite four years later, apartments in the building are selling in foreclosure for $90,000.

“There is no financial sense in staying,” Mr. Koellmann said. With the $1,500 he is paying each month for his mortgage, taxes and insurance, he could rent a nicer place on the beach, one with a gym, security and valet parking.

. . .

Mr. Koellmann applied last fall to Bank of America for a modification, noting that his income had slipped. But the lender came back a few weeks ago with a plan that added more restrictive terms while keeping the payments about the same.

“That may have been the last straw,” Mr. Koellmann said.

Guy D. Cecala, publisher of Inside Mortgage Finance magazine, says he does not hear much sympathy from lenders for their underwater customers.

“The banks tell me that a lot of people who are complaining were the ones who refinanced and took all the equity out any time there was any appreciation,” he said. “The banks are damned if they will help.”

Joe Figliola has heard that message. He bought his house in Elgin, Ill., in 2004, then refinanced twice to get better terms. He pulled out a little money both times to cover the closing costs and other expenses. Now his place is underwater while his salary as circulation manager for the local newspaper has been cut.

“It doesn’t seem right that I can rent a place somewhere for half of what I’m paying,” he said. “I told my bank, ‘Just take a little bite out of what I owe. That would ease me up. Isn’t that why the president gave you all this money?’ ”

Bank of America did not agree, so Mr. Figliola, who is 48, sees no recourse other than walking away. “I don’t believe this is the right thing to do,” he said, “but I’ve got to survive.”

Read full article online at nytimes.com

Part 2: Types of Bankruptcy

Part 3: Limits of Bankruptcy

Part 4: Filing for Bankruptcy

Part 5: Meeting of Creditors

Part 6: Court Hearings

Part 7: The Discharge

Part 8: Legal Assistance

It is estimated that a majority of the credit reports of people who have filed bankruptcy contain errors. Even if you have not filed bankruptcy, your credit report may contain errors. Many of these errors can make it difficult or expensive to obtain credit in the future. If you are going to receive the fresh start that bankruptcy entitles you to, you need to ensure that all of your debts are properly reported on your credit reports.

Common Errors on Any Credit Report

The more common errors that may appear on any credit report include:
- inaccurate reporting of the delinquency date or date of last activity;
- reporting a debt that is too old to be reported;
- inaccurate payment history;
- inaccurate balances, collection activity, or total available credit; and
- unauthorized inquiries.

These errors will affect your ability to get credit or the interest rate you will have to pay.

Bankruptcy-Related Credit Reporting Errors

If you have filed bankruptcy, the chance that your credit report will contain errors increases. In addition to the more common errors, you should be alert to errors that limit the value of your bankruptcy discharge. These errors apply only to debts discharged in your bankruptcy, and include:
- continuing to report a balance due;
- reporting a delinquency date or date of last activity after your bankruptcy filing;
- reporting a bankruptcy filing on the credit report of a spouse who did not file for bankruptcy;
- reporting a discharged debt as “charged off”;
- not reporting a payment history for loans you reaffirmed;
- inaccurate date reported for the bankruptcy filing;
- incorrect bankruptcy chapter filed; and
- incorrect Chapter 13 plan payment or percentage paid.

You Can Fix This

Federal law establishes certain procedures for correcting errors on your credit report. Your credit report will contain instructions on how to dispute errors on that report. It is important that you dispute all errors with the credit reporting agency that issued the report. You should explain what is wrong with the information reported, identify the account you are disputing, and attach copies of any supporting documentation you have. I suggest that you do this in writing and keep a copy of the letter. You may also want to send the letter certified mail, return receipt requested.

If the first letter does not correct the reporting error, try again. If the second letter does not resolve the issue, you may wish to contact legal counsel. In certain circumstances, you can file a lawsuit to get the incorrect information removed from your credit report.

Remember, you can request removal or correction of inaccurate or incorrect information. However, if the information in the report is correct and in compliance with the law, you may not legally require its removal.

How to Obtain Your Credit Report

You are entitled to receive one free copy of your credit report from each of the three major credit reporting agencies each year. You can obtain these free reports online at www.annualcreditreport.com. This website also contains instructions for obtaining your report(s) by telephone or mail, if necessary.

If You Want Me to Do This for You

I will be happy to review your credit report and demand corrections on your behalf. Obviously, I will expect to be paid for this service. If you want my assistance, please call me to schedule an appointment to meet with me. We will discuss my fee schedule at that time. You will need to bring your credit report with you to that appointment. I will be happy to review the credit report with you and send letters requesting corrections. If this does not resolve the problem, we can discuss whether or not you wish to pursue litigation to resolve the issue.

Not only did U.S. consumer bankruptcies jump by nearly a third in 2009, but bankruptcy analysts expect matters to worsen again in 2010 as the deepest economic downturn since the Great Depression continues to work its way through American households.

Consumer bankruptcy filings exceeded 1.4 million last year compared with 1.06 million in 2008, an increase of 32 percent, according to the American Bankruptcy Institute (ABI), a nonpartisan, independent research and education organization. The ABI relied on data compiled by the National Bankruptcy Research Center.

“A combination of economic stress, including high debt loads, rising unemployment and unsustainable mortgage burdens, left many consumers with little choice but to seek the financial relief of bankruptcy,” ABI Executive Director Samuel J. Gerdano said.

“The future is more of the same,” he said.
…
Overburdened by huge mortgages, plunging home values, unsustainable credit card debts, tightening credit conditions and soaring joblessness, families have been carrying an “overhang of consumer debt” for a decade or so as a result of a low savings rate and overconsumption.

The resulting “debt bubble,” Mr. Gerdano said, led to a soaring bankruptcy rate.
…
“People are getting laid off and losing their health insurance. Others who are carrying big debts can’t get home equity loans or refinance their mortgages. It has now all come together. People on Main Street are really hurting, and that pain is not going away, despite current economic indicators” that suggest the recession has ended, Ms. Thompson said.
…
“The vast majority of people file for bankruptcy as a last resort,” she said. “They try to pay their debts, including the 30 percent credit card interest rates, until they can pay no more.”

Ms. Resop is a bankruptcy lawyer specializing in Chapter 7 cases in Madison and Janesville, Wis., where a General Motors Co. plant shut down a year ago. Her business is up 40 percent to 50 percent over the past six months.

“I see a lot more middle-aged people and households that own real estate filing for bankruptcy today,” Ms. Resop said. “Many of these people, who are in their 50s and 60s, got second and third mortgages to keep up with other bills over the years.” Now, they are being crushed by the collapse of housing equity.
…
The range of bankruptcy filers Ms. Resop represents illustrates the extent to which the housing and mortgage crises have decimated the lives of her clients.

“Developers, architects and real estate investors, who made millions of dollars during the booming years, now have zero incomes, and they can’t liquidate their assets because their houses are worth so much less than their mortgages,” she said.

The housing collapse also has filtered down to the working- and middle-class households. Ms. Resop also is representing “landscapers, concrete guys, log-home builders, plumbers – the list goes on. They’ve all maxed out their lines of credit.”

The foreseeable future is not looking any brighter, analysts say.

Click here to read entire article online.

Linda Frakes, an entrepreneur in Georgia, built a life around her six-figure income. But when her new business collided with the credit crunch, Frakes found herself facing a financial fate she never anticipated. “It’s a far way to fall,” she says. Meet the new face of bankruptcy. This nation’s worst downturn in 70 years pushed more formerly affluent people into bankruptcy than in previous recessions. Overall, personal bankruptcy filings were up 36.5 percent in the first half of 2009 from the same time a year ago, and experts predict the number of filings will keep rising even as the economy recovers.

2. “When it comes to bankruptcy, one size doesn’t fit all.”

No type of bankruptcy will eliminate certain kinds of obligations, like child support, alimony and most student loans. But there are differences in the way debt gets handled in personal bankruptcy, often depending on which kind you file for, either Chapter 13 or Chapter 7. And each has pros and cons. Chapter 13 allows those with regular income to repay debts over three to five years. That drags things out a bit, but it stops the foreclosure process, meaning debtors behind on their mortgage can keep their house and catch up on payments over time. Those without regular income must file Chapter 7, which involves no payment plan—all eligible debt, such as credit card balances, gets wiped out. But it’s hardly a free pass. Most debtors find the process pretty traumatic, not to mention severely damaging to their credit score. And Chapter 7 doesn’t stop foreclosure, so banks can still take the homes of debtors behind on a mortgage. How do you know which form is right for you? Bankruptcy law is complex, and certain provisions vary from state to state, so it’s often best for potential filers to consult an attorney before deciding.

3. “We don’t want your house if we can’t get good money for it.”

A common belief about bankruptcy is that it will leave you with nothing, living out of a cardboard box, says Cathleen Moran, a bankruptcy lawyer in Mountain View, Calif. But that’s not necessarily true, even in Chapter 7 cases. In theory, Chapter 7 involves liquidating most of a debtor’s assets to pay creditors, including the home. But in reality, homeowners who end up filing often don’t have enough equity in their home to benefit creditors, either because they’ve taken out a second mortgage, the home’s value has fallen or both. In such cases, the trustee handling the bankruptcy can decide not to liquidate the home, in which case the debtor gets to keep it. Also, there’s something called the homestead exemption, which in most circumstances allows you to keep your primary residence if your equity in it is below a certain threshold. But since Chapter 7 doesn’t stop foreclosure—although it tends to delay it by a few months—those behind on their mortgage often can lose their home regardless.

4. “This could actually improve your credit score down the road.”

Yes, bankruptcy will pummel your credit score, says Barry Paperno, consumer-operations manager for FICO, the company that develops the credit scoring formula used by the three major credit bureaus. Yet bankruptcy can be less damaging in the long run than juggling late payments on credit cards for years in a bid to postpone the inevitable. Bankruptcy stays on your credit report for 10 years, but you can begin repairing it immediately, if gradually. The fact is, most people go bankrupt with lousy credit. They’ll be able to return to (and maybe surpass) their prebankruptcy FICO score more quickly than the rare debtor with pristine credit who needs to file bankruptcy after, say, a serious illness—which could mean a credit score drop of 100 points or more, Paperno says. Since 35 percent of one’s credit score is based on payment history, the further consumers get from any missed payments, the more their score improves, he says. How to quicken the recovery? Establish new credit as soon as possible, Paperno says, either through a new credit card or car loan, though bankruptcy filers will have to pay higher interest rates.

5. “Debt-settlement firms may do more harm than good.”

Debt-settlement firms offer to play hardball with creditors and whittle outstanding balances by up to 75 percent. They bill their services as an alternative to bankruptcy, but in many cases they can hurt more than they help. Debt-settlement firms are unregulated, for-profit entities that require regular payments before taking any action on a consumer’s behalf. This business model works squarely against the debtors’ interests, says Walter Benenati, a bankruptcy attorney in Orlando who worked briefly for a debt-settlement firm. “They’re getting fees every month, so they have no incentive to settle [with creditors] as fast as possible,” he says. In fact, you don’t need a middleman to negotiate with creditors. But, says Mariana Bekker, director of media relations for the United States Organizations for Bankruptcy Alternatives, a debt-settlement trade organization, most debtors don’t have the “time, stamina or desire” to do it themselves. Either way, you’ll owe taxes on any amount saved on your debt. (That’s right: The IRS considers forgiven debt taxable income.) Debt erased as part of bankruptcy, by contrast, isn’t taxed

6. “Don’t settle with Mom first or fudge the condo in Boca.”

Many debtors naturally want to pay back friends and family before filing for bankruptcy. Yet that can be a big mistake. Any money repaid to “insiders”—including relatives, friends and acquaintances, or business partners—within a year of bankruptcy is recoverable by the trustee. If the recipient doesn’t voluntarily return it, the trustee has the power to sue. A more serious infraction involves trying to hide assets from the court. So don’t even think about giving your Harley to your brother—or selling it for cheap—to protect it from creditors. Bankruptcy filers must list everything they’ve sold, transferred or given away over the past two years. And nothing can be transferred, given away or sold for less than market value. There are many ways bankruptcy fudgers get caught. Spurned lovers or creditors often turn them in, says bankruptcy attorney Resop. She also recalls a case in which a lawyer read in the paper that a bankruptcy filer he’d represented a few years back was selling property. Turns out the filer had hidden the house from the court. He lost his bankruptcy discharge, letting creditors come after him again. Liars can also wind up in jail for perjury.

7. “Better save up before you file.”

This spring, Angela Watson realized she was in over her head. The Web entrepreneur from Long Beach, Calif., had incurred more debt than expected launching her business and wanted to explore the possibility of bankruptcy. Yet once she started pricing lawyers’ services, which averaged about $2,000, Watson realized she couldn’t afford to file Chapter 7. Lawyers suggested she borrow the money from family and friends. “I was so hurt by that,” says Watson, who hasn’t even told some of her loved ones about her situation. She’s hoping to file with the help of a legal-services nonprofit. Lawyers in Chapter 7 cases generally request payment up front; otherwise, their fees would be discharged during the bankruptcy process along with other debt. (In Chapter 13, lawyers’ fees become part of the payment plan.) Bankruptcy courts also charge routine fees: $299 to file a Chapter 7, and $274 to file a Chapter 13.

8. “Just because your bills stop coming doesn’t mean you shouldn’t pay them.”

Not only does filing for bankruptcy stop collection calls, but most bills stop coming too. That’s because the courts immediately file an injunction that prohibits collection actions against the debtor or his property. But that doesn’t mean debtors are suddenly released from payment obligations for secured possessions they want to keep—that’s legal lingo for anything bought with collateral, like a car or house. During Chapter 7 proceedings, which usually last about four months, you must remember to pay for what you want to keep in the absence of a bill. (In Chapter 13, those bills are folded into the payment plan the court establishes.) Besides the house and car, secured possessions could also include an engagement ring or other jewelry. Debtors must decide to “reaffirm”—that is, keep and stay current on—any secured debt before all other debts are eliminated in bankruptcy. To do that, in the absence of a bill, contact the party you send payment to. For example, those with Chase auto loans should call the company for logistical (not legal) guidance, says a Chase spokesperson.

9. “Timing is everything.”

When you owe more than you own, it’s time to consult a lawyer, Linfield says. But that doesn’t mean bankruptcy is necessarily the next step, attorneys say. It’s often best to wait until you think the worst is over, says David Leibowitz, a Chicago bankruptcy lawyer, because if you file prematurely, you’ll likely incur more debt, which won’t be included in the bankruptcy discharge. For example, those facing hospitalization may want to postpone until that’s behind them. And for Chapter 7 filers who stand to lose their home, holding off on filing can maximize the time living in the residence without making mortgage payments. To do this, wait until the eve of foreclosure to file for bankruptcy, Moran says. On the other hand, there are situations in which it’s best not to wait. Those with no hope of repaying debt often have little to gain by postponing. In such cases, it’s usually better to bite the bullet sooner rather than later.

10. “Bankruptcy doesn’t have to be the end of the world.”

There’s nothing easy about bankruptcy. It can be especially hard for middle-class filers who face a swift and unexpected slide down the socioeconomic ladder. And those who file for medical reasons suffer the double burden of health problems and financial distress. An important part of the coping process, mental-health professionals say, involves acknowledging the normal feelings of depression, fear and anger that often accompany bankruptcy. But many people emerge from it stronger than they expected. It helps that bankruptcy has become more widespread these days, lessening its stigma. “Misery loves company,” says Richard Shadick, a psychologist and the director of a counseling center at Pace University in New York City. Before she filed, Frakes, the Georgia entrepreneur, dreaded the process and worried about how it would leave her. “I thought I’d be living in a double-wide,” she says. Instead, she parlayed her marketing skills into a deal on a new rental when she lost her home in Chapter 7. (She offered to market the subdivision in exchange for a lower rent.) She lost her old Chevy but got a bargain on a used Jaguar. More rewarding than these material comforts, Frakes says, was that she emerged from bankruptcy with her friends, her family and her faith intact. Indeed, support networks often make all the difference in helping people cope with bankruptcy, counselors say, so don’t be ashamed to reach out.

Carefully read any credit card or other credit offer from a company that claims to represent a lender you listed in your bankruptcy or own a debt you discharged. This may be from a debt collection company that is trying to trick you into reaffirming a debt. The fine print of the credit offer or agreement will likely say that you will get new credit, but only if some or all of the balance from the discharged debt is added to the new account.

“Secured” Credit Card

Another type of credit marketed to recent bankruptcy filers as a good way to reestablish credit involves “secured” credit cards. These are cards where the balances are secured by a bank deposit. The card allows you a credit limit up to the amount you have on deposit in a particular bank account. If you can’t make the payments, you lose the money in the account. They may be useful to establish that you can make regular monthly payments on a credit card after you have had trouble in the past. But since almost everyone now gets unsecured credit card offers even after previous financial problems, there is less reason to consider allowing a creditor to use your bank deposits as collateral. It is preferable not to tie up your bank account.

Credit Repair Companies

Beware of companies that claim: “We can erase bad credit.” These companies rarely offer valuable services for what they charge, and are often an outright scam. The truth is that no one can erase bad credit information from your report if it is accurate. And if there is old or inaccurate information on your credit report, you can correct it yourself for free.

Avoid High Cost Predatory Lenders

Don’t assume that because you filed bankruptcy you will have to get credit on the worst terms. If you can’t get credit on decent terms right after bankruptcy, it may be better to wait. Most lenders will not hold the bankruptcy against you if after a few years you can show that you have avoided problems and can manage your debts.

Be wary of auto dealers, mortgage brokers and lenders who advertise: “Bankruptcy? Bad Credit? No Credit? No Problem!” They may give you a loan after bankruptcy, but at a very high cost. The extra costs and fees on these loans can make it impossible for you to keep up the loan payments. Getting this kind of loan can ruin your chances to rebuild your credit.

Mortgage Loans

If you own your home, some home improvement contractors, loan brokers and mortgage lenders may offer to give you a home equity loan despite your credit history. These loans can be very costly and can lead to serious financial problems and even the loss of your home. Avoid mortgage lenders that:

* Charge excessive interest rates, “points,” brokers’ fees and other closing costs;

* Require that you refinance your current lower interest mortgage or pay off other debts;

* Add on unnecessary and costly products, like credit insurance;

* Make false claims of low monthly payments based on a “teaser” variable interest rate;

* Include a “balloon” payment term that requires you to pay all or most of the loan amount in a lump sum as the last payment;

* Charge a prepayment penalty if you pay off the loan early;

* Change the terms at closing;

* Make false promises that the rate will be reduced later if you make timely payments;

* Pressure you to keep refinancing the loan for no good reason once you get it.

Small Loans

It is always best to save some money to cover unexpected expenses so you can avoid borrowing. But if you are in need of a small loan, avoid the following high cost loans:

Payday loans

Some “check cashers” and finance companies offer to take a personal check from you and hold it without cashing it for one or two weeks. In return, they will give you an amount of cash that is less than the amount of your check. The difference between the amount of your check and the cash you get back in return is interest that the lender is charging you. These payday loans are very costly. For example, if you write a $256 check and the lender gives you $200 back as a loan for two weeks, the $56 you pay equals a 728% interest rate! And if you don’t have the money to cover the check, the lender will either sue you or try to get you to write another check in a larger amount. If you choose to write another check, the lender gets more money from you and you get further into debt.

Auto title loans

For many years, pawn shops have made small high-interest loans in exchange for property. A new type of “pawn” is being made by title lenders who will give you a small loan at very high-interest rates (from 200 to 800%) if you let them hold your car title as collateral for the loan. If you fall behind on the payments, the lender can repossess your car and sell it.

Rent-to-own

By renting a TV, furniture or appliance from a rent-to-own company, you will often pay three or four times more than what it would cost to buy. The company may make even more profit on you because the item you are buying may be previously used and returned. And if you miss a payment, the company may repossess the item leaving with you no credit for the payments you made.

Tax refund anticipation loans

Some tax return preparers offer to provide an “instant” tax refund by arranging for loans based on the expected refund. The loan is for a very short period of time between when the return is filed and when you would expect to get your refund. Like other short-term loans, the fees may seem small but amount to an annual interest rate of 200% or more. It is best to patient and wait for the refund.

What You Can Do to Avoid Problems

* If you don’t want it, don’t get it. If you have doubts about whether you really need the loan or service, or whether you can afford it, don’t let yourself get talked into it by a salesperson using high-pressure tactics. You can always walk away from a bad deal, even at the last minute.

* Shop around. You may qualify for a loan with normal rates from a reputable bank or credit union. Don’t forget that high-cost lenders are counting on your belief that you cannot get credit on better terms elsewhere. Do not let feelings of embarrassment about your past problems stop you from shopping around for the best credit terms.

* Compare credit terms. Do not consider just the monthly payment. Compare the interest rate by looking at the “annual percentage rate,” as this takes into account other fees and finance charges added on the loan. Make sure you know exactly what fees are being charged for credit and why.

* Read before you sign. If you have questions, get help from a qualified professional to review the paperwork. A lender that will not let you get outside help should not be trusted.

* If you give a lender a mortgage in a refinancing deal, remember your cancellation rights. In home mortgage refinancings, federal law gives you a right to cancel for three days after you sign the papers. Exercise these rights if you feel you signed loan papers and got a bad deal. Don’t let the lender talk you out of cancelling.

* Get help early. If you begin to have financial problems, or you are thinking of consolidating unmanageable debts, get help first from a local non-profit housing or debt counseling agency.

Ten Things to Think About Before Getting a New Credit Card

1. Don’t apply for a credit card until you are ready.

Unfortunately, bankruptcy may not have permanently resolved all of your financial problems. It is a bad idea to apply for new credit before you can afford it.

2. Avoid accepting too many offers.

There is rarely a good reason to have more than one or two credit cards. Having too much credit can lead to bad decisions and unmanageable debts, and it will lower your credit rating. This can make it harder for you to get other lower interest rate loans. Avoid accepting a credit card just to get a discount at a store or a “free” gift.

3. Remember that lenders are looking for people who run up big balances, because those consumers pay the most interest.

You may find that credit card companies are pursuing you aggressively by mail and phone even though you filed bankruptcy. Do not view this as a sign that you can afford more credit. The lender may have a marketing profile telling them you are someone who is likely to carry a big credit card balance and pay a good deal of interest. Or they may see you as a good credit risk because you cannot file a Chapter 7 bankruptcy again for quite a few years.

4. Interest rate is important in choosing a card but not the only consideration.

You should always try to get a card with an interest rate as low as possible. But it is rarely a good idea to take a new card just because of a low rate. The rate only matters if you carry a balance from month to month. Also, the rate can easily change, with or without a reason. Remember that even the best credit cards are expensive unless you pay your balance in full every month. And other credit terms can add to your cost, like annual fees, late charges, over-the-limit fees, account set-up fees, cash advance fees, and the method of calculating balances. Sometimes a credit card that appears cheaper is actually more expensive.

5. Beware of temporary “teaser” rates. A teaser rate is an artificially low initial rate that applies only for a limited time.

Most teaser rates are good only for six months or less. After that, the rate automatically goes up. Remember that, if you build up a balance under the teaser rate, the much higher permanent rate will apply when you repay the bill. This means that the permanent long-term rate on the card is much more important than the temporary rate.

6. If your rate is variable, understand how it may change.

Variable interest rates can be very confusing. Some variable rate terms can make your rate go up steeply over time. Read the credit contract to understand how and when your rate may change. And don’t be misled by advertisements that claim “fixed rate,” as this may mean the rate is fixed only until the lender decides to change it again.

7. Check terms related to late payment charges and penalty rates of interest.

Most credit card contracts have terms in the small print for late charges or penalty interest rates that increase if you make even a single late payment. Try to avoid cards with late fees as high as $25–$35 or penalty interest rates of 21–24% or higher. Even if you are not having financial problems, these terms may become important, because they apply equally to accidental late payments.

8. Get a card with a grace period and learn the billing method.

It is important to understand how you will be billed. Look for a card with a grace period that lets you pay off the balance each month without interest. If the card does not have a grace period and interest will apply from the date of your purchase, a low interest rate may actually be higher than it looks. The terms of the grace period are also important, as it may not apply to balance transfers and cash advances. And look out for different interest rates that may apply depending upon the type of charge: these usually include a higher rate for cash advances.

9. Don’t accept a card just because you qualify for a high credit limit.

It is easy to assume that because a card offer includes a high credit limit, this means the lender thinks you can afford more credit. In fact, the opposite may be true. Lenders often give high credit limits to consumers hoping that they think will carry a bigger balance and pay more interest. You must evaluate whether you can afford more credit based on your individual circumstances.

10. Always read both the disclosures and the credit contract.

You will find disclosures about the terms of a credit card offer, usually in small print on the reverse or at the bottom of the offer. Review these carefully. However, the law does not require that all relevant information be disclosed. For this reason, you must also read your credit contract, which comes with the card. This will include terms such as late payment fees, default rates of interest, and a description of the billing method. Since these terms are not easy to understand, you may want to call the lender for an explanation. Or better yet, refuse credit with too many complex provisions, because those terms are likely to work to your disadvantage.

Ten Things to Think About Before Using Your Credit Card

1. Establish a realistic budget.

Before using a credit card after bankruptcy, try paying cash for a while. This will help you learn how much money you need each month to pay the basic necessities. Don’t forget to budget for the payments on any debts you reaffirmed in your bankruptcy.

2. It is important not to use credit cards to make up for a budget shortfall.

Credit card debt is expensive. Sometimes credit cards are so easy to use that people forget they are loans. Be sure to charge only things you really need and plan to pay the balance off in full each month. If you find you are constantly using your card without being able to pay the bill in full each month, you need to consider that you are using cards to finance an unaffordable lifestyle.

3. If you get into financial trouble, do not make it worse by using credit cards to make ends meet.

If you find that you are using credit cards to get through a period of financial difficulty, it is likely that additional credit will only make things worse. For example, if you use cash advances on your credit card to pay bills, the interest due will only add to your debt burden sooner rather than later.

4. Don’t get hooked on minimum payments.

Credit card lenders usually offer an optional “minimum payment” in their monthly billing. These are usually set very low (usually 2% of the balance), barely covering the monthly interest charge. If you pay only the minimum, chances are that you will be paying your debt very slowly or not at all, and you may think you are managing the debt when you are really getting in over your head. For example, if you make only the monthly minimum payments to pay off a $1000 balance at a 17% interest rate, it will take over 7 years to pay your debt! If you are also making new purchases every month while making minimum payments, your debt will grow and take even longer to pay off. This means that your monthly interest obligations will increase and you will have less money in the monthly budget for necessities.

5. Don’t run up the balance based on a temporary “teaser” interest rate.

Money borrowed during a temporary rate period of 6% is likely to be paid back at a much higher permanent rate of 15% or more. Also be careful about juggling cards to take advantage of teaser rates and balance transfer options. It takes a great deal of time and effort to take advantage of terms designed to be temporary. Remember that all teaser rate offers are designed to get you locked into the higher rate for the long term, because that is how the lender makes the most money.

6. Avoid the special services and programs credit card lenders offer to bill to your card.

You are likely to get many mail offers and telemarketer calls from your credit card lender about special services such as credit card fraud protection plans, credit report protection, travel clubs, life and unemployment insurance, and other similar offers. These products are generally overpriced. It is best to throw out and refuse these offers, or at a minimum, treat them with a high degree of caution. And avoid “free trial” offers as you will be billed automatically if you forget to cancel the service.

7. If you can afford to do so, always make your credit card payments on time.

Be careful to avoid late payment charges and penalty rates if you can do so while still paying higher priority debts. Bad problems get worse fast when you have a new higher interest rate and late charge to pay during a time of financial difficulty. Most lenders will waive a late charge or default interest rate one time only. It is worth calling to ask for a waiver if you make a late payment accidentally or with a good excuse.

8. Know exactly when the grace period ends.

The grace period usually ends on the payment “due date,” which may change every month. Many lenders do not mail bills until late in the grace period, so your payment may be due quite soon after you receive the bill. This also means that the grace period may be less than a full month, usually about 20-25 days. Some lenders are slow in posting payments or have strange rules about deadlines (like payments received after 10:00 a.m. on the due date are considered late). Try to mail your payment well before the due date so there will be no question it gets there on time. Paying credit cards on time not only saves you interest and late fees but is a good way to improve your credit rating after bankruptcy.

9. Beware of unsolicited increases by a credit card lender to your credit card limit.

Some lenders increase your credit limit even when you have not asked for more credit. Avoid using the full credit line as your debt can easily spiral out of control. And going over the credit limit even by a few dollars can be very costly as you will likely be charged an over-the-limit fee and a higher penalty interest rate.

10. If you do take a credit card and discover terms you do not like: cancel!

You can always cancel any credit card at any time. Although you will be responsible for any balance due at the time of cancellation, you should not keep using a card after you discover that its terms are unfavorable.

Remember: The law often changes. Each case is different. This article is meant to give you general information and not to give you specific legal advice.

This article reprinted, in substantial part, with permission from the National Consumer Law Center.

Bankruptcy is a choice that may help if you are facing serious financial problems. You may be able to cancel your debts, stop collection calls, and get a fresh financial start. Bankruptcy can help with some financial problems, but does not guarantee you will avoid financial problems in the future. If you choose bankruptcy, you should take advantage of the fresh start it offers and then make careful decisions about future borrowing and credit, so you won’t ever need to file bankruptcy again!

How Long Will Bankruptcy Stay on My Credit Report?

The results of your bankruptcy case will be part of your credit record for ten (10) years. The ten years are counted from the date you filed your bankruptcy.

This does not mean you can’t get a house, a car, a loan, or a credit card for ten years. In fact, you can probably get credit even before your bankruptcy is over! The question is, how much interest and fees will you have to pay? And, can you afford your monthly payments, so you don’t begin a new cycle of painful financial problems?

Debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not own anything on the debt. Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult to get credit. You should check your credit report after your bankruptcy discharge and file a dispute with the credit reporting agency if this information is not correct.

Which Debts Do I Still Owe After Bankruptcy?

When your bankruptcy is completed, many of your debts are “discharged.” This means they are canceled and you are no longer legally obligated to pay them.

However, certain types of debts are NOT discharged in bankruptcy. The following debts are among the debts that generally may not be canceled by bankruptcy:

* Alimony, maintenance, or support for a spouse or children.

* Student loans. Almost no student loans are canceled by bankruptcy. But you can ask the court to discharge the loans if you can prove that paying them is an “undue hardship.” Occasionally, student loans can be canceled for reasons not related to your bankruptcy when, for example, the school closed before you completed the program or if you have become disabled. There are also many options for reducing your monthly payments on student loans, even if you can’t discharge them. For more information, look at the NCLC Guide to Surviving Debt.

* Money borrowed by fraud or false pretenses. A creditor may try to prove in court during your bankruptcy case that you lied or defrauded them, so that your debt cannot be discharged. A few creditors (mainly credit card companies) accuse debtors of fraud even when they have done nothing wrong. Their goal is to scare honest families so that they agree to reaffirm the debt. You should never agree to reaffirm a debt if you have done nothing wrong. If the company files a fraud case and you win, the court may order the company to pay your lawyer’s fees.

* Most taxes. The vast majority of tax debts can not be discharged. However, this can be a complicated issue. If you have tax debts you will need to discuss them with your lawyer.

* Most criminal fines, penalties and restitution orders. This exception includes even minor fines, including traffic tickets.

* Drunk driving injury claims.

Do I Still Owe Secured Debts (Mortgages, Car Loans) After Bankruptcy?

Yes and No. The term “secured debt” applies when you give the lender a mortgage, deed of trust, or lien on property as collateral for a loan. The most common types of secured debts are home mortgages and car loans. The treatment of secured debts after bankruptcy can be confusing.

Bankruptcy cancels your personal legal obligation to pay a debt, even a secured debt. This means the secured creditor can’t sue you after a bankruptcy to collect the money you owe.

But, and this is a big “but,” the creditor can still take back their collateral if you don’t pay the debt. For example, if you are behind on a car loan or home mortgage, the creditor can ask the bankruptcy court for permission to repossess your car or foreclose on your home. Or the creditor can just wait until your bankruptcy is over and then do so. Although a secured creditor can’t sue you if you don’t pay, that creditor can usually take back the collateral.

For this reason, if you want to keep property that is collateral for a secured debt, you will need to catch up on the payments and continue to make them during and after bankruptcy, keep any required insurance, and you may have to reaffirm the loan.

What Is Reaffirmation?

Although you filed bankruptcy to cancel your debts, you have the option to sign a written agreement to “reaffirm” a debt. If you choose to reaffirm, you agree to be legally obligated to pay the debt despite bankruptcy. If you reaffirm, the debt is not canceled by bankruptcy. If you fall behind on a reaffirmed debt, you can get collection calls, be sued, and possibly have your pay attached or other property taken.

Reaffirming a debt is a serious matter. You should never agree to a reaffirmation without a very good reason.

Do I Have to Reaffirm Any Debts?

No. Reaffirmation is always optional. It is not required by bankruptcy law or any other law. If a creditor tries to pressure you to reaffirm, remember you can always say no.

Can I Change My Mind After I Reaffirm a Debt?

Yes. You can cancel any reaffirmation agreement for sixty days after it is filed with the court. You can also cancel at any time before your discharge order. To cancel a reaffirmation agreement, you must notify the creditor in writing. You do not have to give a reason. Once you have canceled, the creditor must return any payments you made on the agreement.

Also, remember that a reaffirmation agreement has to be in writing, has to be signed by your lawyer or approved by the judge, and has to be made before your bankruptcy is over. Any other reaffirmation agreement is not valid.

Do I Have to Reaffirm on the Same Terms?

No. A reaffirmation is a new contract between you and the lender. You should try to get the creditor to agree to better terms such as a lower monthly payment or interest rate. You can also try to negotiate a reduction in the amount you owe. The lender may refuse but it is always worth a try. The lender must give you disclosures on the reaffirmation agreement about the original credit terms, and any new terms you and the lender agree on must also be listed.

Should I Reaffirm?

If you are thinking about reaffirming, the first question should always be whether you can afford the monthly payments. Reaffirming any debt means that you are agreeing to make the payments every month, and to face the consequences if you don’t. The reaffirmation agreement must include information about your income and expenses and your signed statement that you can afford the payments.

If you have any doubts whether you can afford the payments, do not reaffirm. Caution is always a good idea when you are giving up your right to have a debt canceled.

Before reaffirming, always consider your other options. For example, instead of reaffirming a car loan you can’t afford, can you get by with a less costly used car for a while?

Do I Have Other Options for Secured Debts?

You may be able to keep the collateral on a secured debt by paying the creditor in a lump sum the amount the item is worth rather than what you owe on the loan. This is your right under the bankruptcy law to “redeem” the collateral.

Redeeming collateral can save you hundreds of dollars. Because furniture, appliances, and other household goods go down in value quickly once they are used, you may redeem them for less than their original cost or what you owe on the account.

You may have another option if the creditor did not loan you the money to buy the collateral, like when a creditor takes a lien on household goods you already have. You may be able to ask the court to “avoid” this kind of lien. This will make the debt unsecured.

Do I Have to Reaffirm Car Loans, Home Mortgages?

If you are behind on a car loan or a home mortgage and you can afford to catch up, you can reaffirm and possibly keep your car or home. If the lender agrees to give you the time you need to get caught up on a default, this may be a good reason to reaffirm. But if you were having trouble staying current with your payments before bankruptcy and your situation has not improved, reaffirmation may be a mistake. The collateral is likely to be repossessed or foreclosed anyway after bankruptcy, because your obligation to make payments continues. If you have reaffirmed, you could then be required to pay the difference between what the collateral is sold for and what you owe.

If you are up to date on your loan, you may not need to reaffirm to keep your car or home. Some lenders will let you keep your property without signing a reaffirmation as long as you continue to make your payments. Sometimes lenders will do so if they think the bankruptcy court will not approve the reaffirmation agreement.

And What About Credit Cards and Department Store Cards?

It is almost never a good idea to reaffirm a credit card. Reaffirming means you will pay bills that your bankruptcy would normally wipe out. That can be a very high price to pay for the convenience of a credit card. Try paying cash. Then in a few years, you can probably get a new credit card, that won’t come with a large unpaid balance!

If you do reaffirm, try to get something in return, like a lower balance, no interest on the balance, or a reasonable interest rate on any new credit. Don’t be stuck paying 18-21% or higher!

Some department store credit cards may be secured. The things you buy with the credit card may be collateral. The store might tell you that they will repossess what you bought, such as a TV, washer, or sofa, if you do not reaffirm the debt. Most of the time, stores will not repossess used merchandise. So, after a bankruptcy, it is much less likely that a department store would repossess “collateral” than a car lender.

However, repossession is possible. You have to decide how important the item is to you or your family. If you can replace it cheaply or live without it, then you should not reaffirm. You can still shop at the store by paying cash, and the store may offer you a new credit card even if you don’t reaffirm. (Just make sure that your old balance is not added into the new account.)

For Example:
Some offers to reaffirm may seem attractive at first. Let’s say a department store lets you keep your credit card if you reaffirm $1000 out of the $2000 you owed before bankruptcy. They say it will cost you only $25 per month and they will also give you a $500 line of credit for new purchases. What they might not tell you is that they will give you a new credit card in a few months even if you do not reaffirm. More importantly, though, you should understand that you are agreeing to repay $1000 plus interest that the law says you can have legally canceled. That is a big price to pay for $500 in new credit.

Remember: The law often changes. Each case is different. This article is meant to give you general information and not to give you specific legal advice.

This article reprinted, in substantial part, with permission from the National Consumer Law Center.

There have been many news reports suggesting that changes to the bankruptcy law passed by Congress in 2005 prevent many individuals from filing bankruptcy. It is true that these changes have made the process more complicated. But the basic right to file bankruptcy and most of the benefits of bankruptcy remain the same for most individuals.

What Is Bankruptcy?

Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law.

What Can Bankruptcy Do for Me?

Bankruptcy may make it possible for you to:
• Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. It is designed to give you a fresh financial start.
• Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
• Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed.
• Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt.
• Restore or prevent termination of utility service.
• Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.

What Bankruptcy Cannot Do

Bankruptcy cannot cure every financial problem, nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
• Eliminate certain rights of “secured” creditors. A creditor is “secured” if it has taken a mortgage or other lien on property as collateral for a loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money on the debt if you decide to give back the property. But you generally cannot keep secured property unless you continue to pay the debt.
• Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, most student loans, court restitution orders, criminal fines, and most taxes.
• Protect cosigners on your debts. If a relative or friend co-signed a loan, the cosigner may still have to repay all or part of the loan.
• Discharge debts that arise after bankruptcy has been filed.

What Different Types of Bankruptcy Cases Should I Consider?

There are four types of bankruptcy cases provided under the law:
• Chapter 7 is known as “straight” bankruptcy or “liquidation.” It requires an individual to give up property which is not “exempt” under the law, so the property can be sold to pay creditors. Generally, those who file chapter 7 keep all of their property except property which is very valuable or which is subject to a lien which they cannot avoid or afford to pay.
• Chapter 11, known as “reorganization,” is used by businesses and a few individuals whose debts are very large.
• Chapter 12 is reserved for family farmers and fishermen.
• Chapter 13 is a type of “reorganization” used by individuals to pay all or a portion of their debts over a period of years using their current income.

Most consumers filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individually or by a married couple filing jointly.

Chapter 7 (Straight Bankruptcy)

In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors.

If you want to keep property like a home or a car and are behind on the mortgage or car loan payments, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt.

If your income is above the median family income in your state, you may have to file a chapter 13 case (effective 3/15/09, the median family income for a family of four in Arkansas is $56,822). Higher-income consumers must fill out “means test” forms requiring detailed information about their income and expenses. If the forms show, based on standards in the law, that they have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that they cannot file a chapter 7 case, unless there are special extenuating circumstances.

Chapter 13 (Reorganization)

In a chapter 13 case you file a “plan” showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property–especially your home and car–which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind.

You should consider filing a chapter 13 plan if you:
• Own your home and are in danger of losing it because of money problems;
• Are behind on debt payments, but can catch up if given some time;
• Have valuable property which is not exempt, but you can afford to pay creditors from your income over time.

You will need to have enough income during your chapter 13 case to pay for your necessities and to keep up with the required payments as they come due.

What Does It Cost to File for Bankruptcy?

The court filing fees are $299 for a Chapter 7 and $274 for a Chapter 13. The court may allow you to pay this filing fee in installments if you cannot pay it all at once. If you hire an attorney you will also have to pay the a fee for the attorney’s services, which can range from $750-$2500 or upwards, depending on the complexity of your case.

What Must I Do Before Filing Bankruptcy?

You must receive budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed. The agency will review possible options available to you in credit counseling and assist you in reviewing your budget. Different agencies provide the counseling in-person, by telephone, or over the Internet. If you decide to file bankruptcy, you must have a certificate from the agency showing that you received the counseling before your bankruptcy case was filed.

Most approved agencies charge between $30 and $50 for the pre-filing counseling. However, the law requires approved agencies to provide bankruptcy counseling and the necessary certificates without considering an individual’s ability to pay. If you cannot afford the fee, you should ask the agency to provide the counseling free of charge or at a reduced fee.

If you decide to go ahead with bankruptcy, you should be very careful in choosing an agency for the required counseling. It is extremely difficult to sort out the good counseling agencies from the bad ones. Many agencies are legitimate, but many are simply rip-offs. And being an “approved” agency for bankruptcy counseling is no guarantee that the agency is good. It is also important to understand that even good agencies won’t be able to help you much if you’re already too deep in financial trouble.

Some of the approved agencies offer debt management plans (also called DMPs). A DMP is a plan to repay some or all of your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors. Debt management plans can be helpful for some consumers. For others, they are a terrible idea. The problem is that many counseling agencies will pressure you into a debt management plan as a way of avoiding bankruptcy whether it makes sense for you or not. You should not consider a debt management plan if making the monthly plan payment will mean you will not have money to pay your rent, mortgage, utilities, food, prescriptions, and other necessities. It is important to keep in mind these important points:

• Bankruptcy is not necessarily to be avoided at all costs. In many cases, bankruptcy may actually be the best choice for you.
• If you sign up for a debt management plan that you can’t afford, you may end up in bankruptcy anyway (and a copy of the plan must also be filed in your bankruptcy case).
• There are approved agencies for bankruptcy counseling that do not offer debt management plans.

It is usually a good idea for you to meet with an attorney before you receive the required credit counseling. Unlike a credit counselor, who cannot give legal advice, an attorney can provide counseling on whether bankruptcy is the best option. If bankruptcy is not the right answer for you, a good attorney will offer a range of other suggestions. The attorney can also provide you with a list of approved credit counseling agencies, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust.

What Property Can I Keep?

In a chapter 7 case, you can keep all property which the law says is “exempt” from the claims of creditors. It is important to check the exemptions that are available in the state where you live. (If you moved to your current state from a different state within two years before your bankruptcy filing, you may be required to use the exemptions from the state where you lived just before the two-year period.) In Arkansas, you are given a choice when you file bankruptcy between using either the state exemptions or using the federal bankruptcy exemptions.

Federal bankruptcy exemptions include:
• $20,200 in equity in your home;
• $3225 in equity in your car;
• $525 per item in any household goods up to a total of $10,775;
• $2025 in things you need for your job (tools, books, etc.);
• $1075 in any property, plus part of the unused exemption in your home, up to $10,125;
• Your right to receive certain benefits such as Social Security, unemployment compensation, veteran’s benefits, public assistance, and pensions–regardless of the amount.

The amounts of the exemptions are doubled when a married couple files together. Again, you may be required to use state exemptions which may be more or less generous than the federal exemptions.

In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth when your bankruptcy case is filed. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement.

You also only need to look at your equity in property. That means you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you have only $10,000 in equity. You can fully protect the $50,000 home with a $10,000 exemption.

While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy.

What Will Happen to My Home and Car If I File Bankruptcy?

In most cases you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13.

However, some of your creditors may have a “security interest” in your home, automobile, or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case.

In a chapter 13 case, you may be able to keep certain secured property by paying the creditor the value of the property rather than the full amount owed on the debt. Or you can use chapter 13 to catch up on back payments and get current on the loan.

There are also several ways that you can keep collateral or mortgaged property after you file a chapter 7 bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt.

Can I Own Anything After Bankruptcy?

Yes! Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt.

Will Bankruptcy Wipe Out All My Debts?

Yes, with some exceptions. Bankruptcy will not normally wipe out:

• Money owed for child support or alimony;
• Most fines and penalties owed to government agencies;
• Most taxes and debts incurred to pay taxes which cannot be discharged;
• Student loans, unless you can prove to the court that repaying them will be an “undue hardship”;
• Debts not listed on your bankruptcy petition;
• Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
• Debts resulting from “willful and malicious” harm;
• Debts incurred by driving while intoxicated;
• Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).

Will I Have to Go to Court?

In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors” to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation.

Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear at a hearing. In a chapter 13 case, you may also have to appear at a hearing when the judge decides whether your plan should be approved. If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney.

What Else Must I Do to Complete My Case?

After your case is filed, you must complete an approved course in personal finances. This course will take approximately two hours to complete. Many of the course providers give you a choice to take the course in-person at a designated location, over the Internet (usually by watching a video), or over the telephone. Your attorney can give you a list of organizations that provide approved courses, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust. If you cannot afford the fee, you should ask the agency to provide the course free of charge or at a reduced fee. In a chapter 7 case, you should sign up for the course soon after your case is filed. If you file a chapter 13 case, you should ask your attorney when you should take the course.

Will Bankruptcy Affect My Credit?

There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse.

The fact that you’ve filed a bankruptcy can appear on your credit record for ten years from the date your case was filed. But because bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit.

If you decide to file bankruptcy, remember that debts discharged in your bankruptcy should be listed on your credit report as having a zero balance, meaning you do not own anything on the debt. Debts incorrectly reported as having a balance owed will negatively affect your credit score and make it more difficult or costly to get credit. You should check your credit report after your bankruptcy discharge and file a dispute with credit reporting agencies if this information is not correct.

What Else Should I Know?

Utility services–Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which arise after bankruptcy is filed.

Discrimination–An employer or government agency cannot discriminate against you because you have filed for bankruptcy. Government agencies and private entities involved in student loan programs also cannot discriminate against you based on a bankruptcy filing.

Driver’s license–If you lost your license solely because you couldn’t pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back.

Co-signers–If someone has co-signed a loan with you and you file for bankruptcy, the co-signer may have to pay your debt. If you file under chapter 13, you may be able to protect co-signers, depending upon the terms of your chapter 13 plan.

How Do I Find a Bankruptcy Attorney?

As with any area of the law, it is important to carefully select an attorney who will respond to your personal situation. The attorney should not be too busy to meet you individually and to answer questions as necessary.

The best way to find a trustworthy bankruptcy attorney is to seek recommendations from family, friends or other members of the community, especially any attorney you know and respect. You should carefully read retainers and other documents the attorney asks you to sign. You should not hire an attorney unless he or she agrees to represent you throughout the case.

In bankruptcy, as in all areas of life, remember that the person advertising the cheapest rate is not necessarily the best. Many of the best bankruptcy lawyers do not advertise at all.

Document preparation services also known as “typing services” or “paralegal services” involve non-lawyers who offer to prepare bankruptcy forms for a fee. Problems with these services often arise because non-lawyers cannot offer advice on difficult bankruptcy cases and they offer no services once a bankruptcy case has begun. There are also many shady operators in this field, who give bad advice and defraud consumers.

When first meeting a bankruptcy attorney, you should be prepared to answer the following questions:
• What types of debt are causing you the most trouble?
• What are your significant assets?
• How did your debts arise and are they secured?
• Is any action about to occur to foreclose or repossess property, to attach your wages or bank account, or to shut off utility service?
• What are your goals in filing the case?

Can I File Bankruptcy Without an Attorney?

Although it may be possible for some people to file a bankruptcy case without an attorney, it is not a step to be taken lightly. The process is difficult and you may lose property or other rights if you do not know the law. It takes patience and careful preparation. Chapter 7 (straight bankruptcy) cases are somewhat easier. Very few people have been able to successfully file chapter 13 (reorganization) cases on their own.

Remember: The law often changes. Each case is different. This article is meant to give you general information and not to give you specific legal advice.

This article reprinted, in substantial part, with permission from the National Consumer Law Center.

Despite the catchy jingle used in their commercials, obtaining a copy of your credit report online at freecreditreport.com is not necessarily “F-R-E-E”! You are required to provide a valid credit card to obtain your “free” report. The fine print authorizes a monthly charge to your credit card if you do not call to cancel their service within X number of days. Assuming you even notice this requirement, you probably won’t remember to cancel and the monthly charges will begin.

So how do you obtain a truly free, no-strings-attached copy of your credit report?
Go to the official website at www.AnnualCreditReport.com, enter certain required personal information, and you’ll have your free credit report within minutes. That’s it. No need to give out your credit card number and hope you remember to jump through the appropriate hoops to avoid charges.

It’s that easy. Now getting that annoying “F-R-E-E that spells free…” jingle out of your head is another story!

For more information about your access to free credit reports, visit this FTC web page.

The Federal Trade Commission (FTC), the nation’s consumer protection agency, enforces the Fair Debt Collection Practices Act (FDCPA), which prohibits debt collectors from using abusive, unfair, or deceptive practices to collect from you.

Under the FDCPA, a debt collector is someone who regularly collects debts owed to others. This includes collection agencies, lawyers who collect debts on a regular basis, and companies that buy delinquent debts and then try to collect them.

Here are some questions and answers about your rights under the Act.

What types of debts are covered?

The Act covers personal, family, and household debts, including money you owe on a personal credit card account, an auto loan, a medical bill, and your mortgage. The FDCPA doesn’t cover debts you incurred to run a business.

Can a debt collector contact me any time or any place?

No. A debt collector may not contact you at inconvenient times or places, such as before 8 in the morning or after 9 at night, unless you agree to it. And collectors may not contact you at work if they’re told (orally or in writing) that you’re not allowed to get calls there.

How can I stop a debt collector from contacting me?

If a collector contacts you about a debt, you may want to talk to them at least once to see if you can resolve the matter – even if you don’t think you owe the debt, can’t repay it immediately, or think that the collector is contacting you by mistake. If you decide after contacting the debt collector that you don’t want the collector to contact you again, tell the collector – in writing – to stop contacting you. Here’s how to do that:

Make a copy of your letter. Send the original by certified mail, and pay for a “return receipt” so you’ll be able to document what the collector received. Once the collector receives your letter, they may not contact you again, with two exceptions: a collector can contact you to tell you there will be no further contact or to let you know that they or the creditor intend to take a specific action, like filing a lawsuit. Sending such a letter to a debt collector you owe money to does not get rid of the debt, but it should stop the contact. The creditor or the debt collector still can sue you to collect the debt.

Can a debt collector contact anyone else about my debt?

If an attorney is representing you about the debt, the debt collector must contact the attorney, rather than you. If you don’t have an attorney, a collector may contact other people – but only to find out your address, your home phone number, and where you work. Collectors usually are prohibited from contacting third parties more than once. Other than to obtain this location information about you, a debt collector generally is not permitted to discuss your debt with anyone other than you, your spouse, or your attorney.

What does the debt collector have to tell me about the debt?

Every collector must send you a written “validation notice” telling you how much money you owe within five days after they first contact you. This notice also must include the name of the creditor to whom you owe the money, and how to proceed if you don’t think you owe the money.

Can a debt collector keep contacting me if I don’t think I owe any money?

If you send the debt collector a letter stating that you don’t owe any or all of the money, or asking for verification of the debt, that collector must stop contacting you. You have to send that letter within 30 days after you receive the validation notice. But a collector can begin contacting you again if it sends you written verification of the debt, like a copy of a bill for the amount you owe.

What practices are off limits for debt collectors?

Harassment. Debt collectors may not harass, oppress, or abuse you or any third parties they contact. For example, they may not:
* use threats of violence or harm;
* publish a list of names of people who refuse to pay their debts (but they can give this information to the credit reporting companies);
* use obscene or profane language; or
* repeatedly use the phone to annoy someone.

False statements. Debt collectors may not lie when they are trying to collect a debt. For example, they may not:
* falsely claim that they are attorneys or government representatives;
* falsely claim that you have committed a crime;
* falsely represent that they operate or work for a credit reporting company;
* misrepresent the amount you owe;
* indicate that papers they send you are legal forms if they aren’t; or
* indicate that papers they send to you aren’t legal forms if they are.

Debt collectors also are prohibited from saying that:
* you will be arrested if you don’t pay your debt;
* they’ll seize, garnish, attach, or sell your property or wages unless they are permitted by law to take the action and intend to do so; or
* legal action will be taken against you, if doing so would be illegal or if they don’t intend to take the action.

Debt collectors may not:
* give false credit information about you to anyone, including a credit reporting company;
* send you anything that looks like an official document from a court or government agency if it isn’t; or
* use a false company name.

Unfair practices. Debt collectors may not engage in unfair practices when they try to collect a debt. For example, they may not:
* try to collect any interest, fee, or other charge on top of the amount you owe unless the contract that created your debt – or your state law – allows the charge;
* deposit a post-dated check early;
* take or threaten to take your property unless it can be done legally; or
* contact you by postcard.

Can I control which debts my payments apply to?

Yes. If a debt collector is trying to collect more than one debt from you, the collector must apply any payment you make to the debt you select. Equally important, a debt collector may not apply a payment to a debt you don’t think you owe.

Can a debt collector garnish my bank account or my wages?

If you don’t pay a debt, a creditor or its debt collector generally can sue you to collect. If they win, the court will enter a judgment against you. The judgment states the amount of money you owe, and allows the creditor or collector to get a garnishment order against you, directing a third party, like your bank, to turn over funds from your account to pay the debt.

Wage garnishment happens when your employer withholds part of your compensation to pay your debts. Your wages usually can be garnished only as the result of a court order. Don’t ignore a lawsuit summons. If you do, you lose the opportunity to fight a wage garnishment.

Can federal benefits be garnished?

Many federal benefits are exempt from garnishment, including:
* Social Security Benefits
* Supplemental Security Income (SSI) Benefits
* Veterans’ Benefits
* Civil Service and Federal Retirement and Disability Benefits
* Service Members’ Pay
* Military Annuities and Survivors’ Benefits
* Student Assistance
* Railroad Retirement Benefits
* Merchant Seamen Wages
* Longshoremen’s and Harbor Workers’ Death and Disability Benefits
* Foreign Service Retirement and Disability Benefits
* Compensation for Injury, Death, or Detention of Employees of U.S. Contractors Outside the U.S.
* Federal Emergency Management Agency Federal Disaster Assistance

But federal benefits may be garnished under certain circumstances, including to pay delinquent taxes, alimony, child support, or student loans.

Do I have any recourse if I think a debt collector has violated the law?

You have the right to sue a collector in a state or federal court within one year from the date the law was violated. If you win, the judge can require the collector to pay you for any damages you can prove you suffered because of the illegal collection practices, like lost wages and medical bills. The judge can require the debt collector to pay you up to $1,000, even if you can’t prove that you suffered actual damages. You also can be reimbursed for your attorney’s fees and court costs. A group of people also may sue a debt collector as part of a class action lawsuit and recover money for damages up to $500,000, or one percent of the collector’s net worth, whichever amount is lower. Even if a debt collector violates the FDCPA in trying to collect a debt, the debt does not go away if you owe it.

What should I do if a debt collector sues me?

If a debt collector files a lawsuit against you to collect a debt, respond to the lawsuit, either personally or through your lawyer, by the date specified in the court papers to preserve your rights.

Where do I report a debt collector for an alleged violation?

Report any problems you have with a debt collector to the state Attorney General’s office (www.ag.state.ar.us/consumers_consumer_tips.html) and the Federal Trade Commission (www.ftc.gov). For Arkansas rules and regulations, visit the Arkansas State Board of collection Agencies’ website at (http://www.asbca.org/).

For More Information

To learn more about debt collection and other credit-related issues, visit www.ftc.gov/credit and MyMoney.gov, the U.S. government’s portal to financial education.