Credit Repair After Bankruptcy

Obtaining future credit should be a big concern for individuals who are filing bankruptcy or who have filed bankruptcy. Although credit markets are tight we still live in a world of credit and credit is required to rent a car, flights, hotel rooms… Credit is also linked to insurance rates and the ability to buy cars and houses. Many potential filers think that bankruptcy will permanently rune their credit score. Bankruptcy will not permanently rune your credit score.
Here is a CNN.com segment regarding repair of credit after bankruptcy:

How to Bounce Back After Bankruptcy

Take a individual who has $30,000 in debt and earns $40,000 per year in income. To a creditor the income to debt ratio looks bad and the individual is likely not going to qualify for credit. Take the same individual who has filed bankruptcy, now the debt is $0 and the income is $40,000 per year. The income to debt ratio is good. Beyond the income to debt ratio a creditor will also know that the individual will not be able to file chapter 7 for eight years after a previous filing, so the creditor know that they stand a good chance in being repaid.

I have asked clients to call me to report what their score is after 6 months to a year after filing. All of the calls I have received the scores have gone up.

House Underwater!

According to a recent report 30% of homeowners are underwater on their home. Essentially an underwater home is worth less than what is owing to a the bank. If you are one of these homeowners, a number of considerations should be taken on how to proceed. First, are you current on your mortgage? If current, you should be thinking that you need a place to live and in a lot of cases a mortgage payment including the principal, interest, taxes and insurance is less than comparable rent. Second, how far underwater is your house? If you home is $40,000 or more underwater you should run a calculator to see how many years it will take to bring your house above water considering payments and inflation of home prices. Third, can you afford the home even if a disaster strikes? If a family member suffers a job loss or health problem can you remain current on the home? If the answer is yes, stay in the house. If the answer is no, either you need greater savings or consider if the house if affordable considering the above factors.
If ultimately you decide you cannot afford the house, generally in Minnesota only a 2nd mortgage can pursue you and seek judgment. A bankruptcy can discharge any 2nd mortgage judgment.

Minnesota job markets are up, you found a job, now you have more to lose.

Things are looking up for Minnesotans looking for work. According a Star Tribune article published on Friday and found here: http://www.startribune.com/business/141041603.html the job market is looking good and Minnesota unemployment is reported at 5.6 percent. If you have now found a job, congratulations. The issue you will now face is one of protecting your new income from creditors. When a person is unemployed typically they are “judgment proof.” “Judgment proof” means a creditor cannot collect against you because you do not have income or assets. Once you start working, any judgments you have can be used to collect through garnishment or levy. Both your bank account and wages are fair game. In the situation where you have started work again and have started to rebuild assets the question becomes do you want to work for your creditors and struggle for 10 or more years to pay them back or should a bankruptcy be considered. Despite what the news media will have you believe you can repair your credit faster while at the same time increasing your net worth quicker by filing bankruptcy.

If you choose not to file a creditor may garnish 25% of disposable income, meaning you are working for a creditor 25% of the time. The same creditor can also take all of the funds you have in your bank account. By choosing to file bankruptcy your wages are protected and your bank accounts are safe. Contact me to discuss the truth about bankruptcy.

Will I loose my car or house in a Minnesota bankruptcy?

In most areas of Minnesota a car is absolutely necessary. One fear individuals have when contemplating bankruptcy is that their automobile will be lost. The key to remember with a car that has a loan or lien is the debt is secured. Bankruptcy will discharge unsecured debts and will discharge your personal obligation on a secured debt. Bankruptcy will not strip a lien off a car. In the case of a car with a loan, so long as you continue to make payment in most cases you will keep your car. The bank does not want your car back in most case. In some odd cases a bank will want you to sign a reaffirmation agreement in order to retain your car.

In the case of a house located in Minnesota, the same thing goes, not only do you need a place to live but a bank does not want the house the bank wants you to continue to make timely payments. So long as you continue to make timely payments on your house you will keep it. Banks, especially in the case of houses, do not want them back, they would rather you keep making payments because the cost to foreclose is high. If you are behind on house payments a chapter 7 bankruptcy can temporarily stop the foreclosure. If you can bring the payments current the foreclosure will be canceled and the sheriff’s sale will be canceled. For individuals who are months behind a chapter 13 bankruptcy can allow a individual to catch up during the plan. If you have a second mortgage that is fully unsecured (the debt owed on the first mortgage is greater than the value of the house) a MN chapter 13 can strip the lien effectively brining a house that is underwater back closer to the surface.

Who can garnish in Minnesota and how much can they take?

One of the biggest terrors a person can experience is the reality that a creditor has taken funds from a paycheck or from a bank account. In the case of a paycheck or wage garnishment a creditor is allowed to garnish up to 25% of disposable income (unless the garnishment if for child support). Only one wage garnishment is allowed at a time in Minnesota (even if two creditors have a valid garnishment, only one creditor can take 25% for a period of 70 days at which time the next garnishment may begin) Minnesota wage garnishments are controlled by Minn. Stat. 571.92.

In the case of wage garnishments (controlled by Minn. Stat. 571.91) a bank may obtain up to 110 percent of the amount owed to the creditor which can be the entire amount in your bank account, checking account and investment account. The big MN banks, Wells Fargo, TCF, U.S. Bank and Bank of America often charge a fee on top of the garnishment. The result of the garnishment and bank fees will often leave a bank account negative.

There are options to protect your income and bank accounts from creditors but you can’t delay. Once a creditor has taken a Minnesota judgment your wages and financial accounts are at risk. Doing nothing will ensure that the garnished funds will be lost forever contacting us can mean stopped garnishment and recovered funds.