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Repairing credit after bankruptcy
For many individuals who find themselves in overwhelming debt due to unexpected medical bills or unpaid tax debts, bankruptcy offers a fresh start and a way to begin recovering financial stability. While filing for bankruptcy may lower an individual's credit score temporarily, there are several ways to increase the score after going through bankruptcy.
Bankruptcy and credit reports
Both chapter 7 and chapter 13 bankruptcy may offer benefits to individuals who are having trouble paying their bills. People who have a steady income may qualify for chapter 13, which may stop foreclosure proceedings and allow the filer to pay off secured debts within three years.
According to the U.S. Courts, once an individual completes all payments under the chapter 13 plan, he or she receives a discharge. This legal ruling releases the individual for any debts covered by the bankruptcy plan. Within a few years after the discharge, the chapter 13 information may drop off the individual's credit report, allowing him or her to improve the score.
What are signs of debt collection abuse?
Unexpected medical bills, job loss and economic uncertainty are just a few of the things that may cause you to feel overwhelmed by debt. If you are unable to pay some bills for a while, those balances may go to a debt collection service. Unfortunately, many collectors use unfair and/or abusive tactics.
The Federal Trade Commission provides information on the laws relating to fair debt collection. Recognizing abusive and deceptive practices may help you avoid financial issues.
Requirements for debt collectors
According to the FTC, debt collectors may contact you through the phone, email, text messages or letters. However, laws prevent them from making phone calls to your home early in the morning or late at night. When a debt collector contacts you, he or she must provide you with a written notice that includes specific details: the name of the creditor, the amount you owe and the steps you should take if the debt is not yours.
Does chapter 13 bankruptcy save your home from foreclosure?
Considering Bankruptcy
A volatile economy makes it challenging to keep paying your bills on time when something unexpected happens. Even a relatively simple medical issue may lead to high doctor's bills and a temporary loss of income. It may only take a few months for your debt to spiral out of control, leaving you with delinquent mortgage payments and the threat of foreclosure.
If you are facing foreclosure but want to keep your home, filing for bankruptcy may give you the opportunity to recover from overwhelming debt without losing your home.
Chapter 13 bankruptcy requirements
According to the U.S. Courts, chapter 13 bankruptcy may allow you to avoid foreclosure on your home. This type of bankruptcy, a wage earner's plan, requires you to have a regular source of income to meet the eligibility requirements. If you do have a steady income, you may work with the court to develop a repayment plan that generally lasts for three years. During this time, you make reasonable payments to a trustee who distributes the money to your creditors according to the terms of the bankruptcy plan.
Get the facts behind these common bankruptcy myths
Misconceptions about bankruptcy prevent many people from relieving themselves of debt they can no longer pay. If you struggle with credit card bills and worry about losing your home, bankruptcy may be a route worth exploring.
These are the truths behind four of the most pervasive bankruptcy myths.
"You will lose assets if you file for bankruptcy"
In fact, most people who file Chapter 7 or Chapter 13 bankruptcy keep their homes, cars and other possessions. States and the federal government offer a list of property you can exempt from your filing. The court may require you to sell assets beyond the exemption threshold to pay debt.
"Bankruptcy erases all debts"
Certain debts are not eligible for bankruptcy discharge, including student loan debt, past-due child support, spousal support, payment for criminal restitution and tax debt accrued within the past three years. In addition, if you exceed the income for a Chapter 7 bankruptcy, you will repay a portion of your reorganized debt with a Chapter 13 filing. Personal loans, credit cards, medical bills and other unsecured debts are generally eligible for discharge through bankruptcy.
What happens to my credit score if I do not pay my tax debts?
Medical bills and student loans get a lot of media attention when it comes to the collective American debt. What people do not hear enough about are the Americans struggling to repay hefty tax debts to the IRS. Does this describe your situation?
When people have big tax debts, the assumption is that the individual attempted to dupe the IRS and got caught. This is certainly a possibility, but many people do not file their own tax returns. It is frightening what some professionals can do to skim money off the top at your expense.
Even when you do file your own taxes, you may make mistakes that cost thousands later on. In fact, the IRS itself can make a mistake, such as continuing to send out automated billings for a settled bill.
How does it impact your credit?
Even when the bill is legitimate, unpaid taxes may not end up affecting your credit score at all. Credit Karma reports that this was not the case until 2018 when the three credit bureaus stopped including tax liens on credit reports. Even though they might not directly affect your credit score, there are other problems it can create.
What is the Maryland Chapter 7 means test?
If you have begun thinking about filing Chapter 7 bankruptcy, you need to know about the means test you must pass in order to qualify. FindLaw explains that per the 2005 Bankruptcy Protection Act, each state first determines its residents' median annual income and then determines whether or not your income falls below this level. If so, you qualify,
In Maryland, the median annual income for one person is $69,529; for a couple, it is $88,815.
Median income inclusions
To determine your annual income, you must first determine your income for the last six months and then multiply by two. Your median income calculation must include such things as the following:
- Employment income, including salary or wages, overtime amounts, bonuses, tips, commissions, etc.
- Self-employment income, including the gross income you receive from your profession, business or farm
- Interest, dividend and royalty payment income
What is the difference between an unsecured and a secured credit card?
A secured credit card is basically a training wheel credit card. You may be a young person applying for a credit card. The credit card company may want to know why it should give you a credit card. You have no credit history at all and you are too big of a risk. So what you can do instead is get a secured credit card. You basically put like $500 or $1000 down. Over time, you will charge something and you will pay it off. The credit card company will see you as a trustworthy person. Finally, they will graduate you to an unsecured credit card where you do not have to put money down, but they basically just trust you.
According to CreditNet, an unsecured credit card is a credit card that you could apply for that does not require what they call a deposit. You will get credit limit increases over time. Sometimes you have the ask for credit limit increases, usually around every five or six months. A secured credit card is where you actually have to give the company a deposit. They have to own either a portion of the funds that you will not have access to or they have to get all of it.
Credit card options after Chapter 7
After people file for bankruptcy, they may think they will not be able to get a credit card. However, bankruptcy usually does not prevent people from getting new credit cards. A previous blog discussed the effects that bankruptcy can have on a credit score. This blog discusses the options people can pursue to get a new credit card after they file for Chapter 7.
After bankruptcy, some people may want to get the same kind of credit card they had before. Nerd Wallet says it is important for people to remember that this may not always be possible. If people did not pay off their credit cards before bankruptcy, some traditional lenders may not always be willing to open a new line of credit. If people can get the same kind of card, they may face high interest rates. However, people still have options available to them. Some people may want to get a secured credit card. With this option, people usually put down a deposit and this deposit serves as the limit they can spend. This may be helpful if people worry about overspending on their credit cards after bankruptcy.
Can bankruptcy improve your credit score?
Whether you want to buy a new car, purchase a home or even set up a cellphone plan, you likely need to have decent credit. If you struggle to pay your bills, though, your credit score may not be as high as you would like. You may also worry about ever having the financial means to improve your creditworthiness.
Credit reporting bureaus use a variety of factors to calculate your credit score. If you have a poor debt-to-income ratio or have missed payments, you may not have sufficient credit to provide for yourself and your family. While a bankruptcy filing may cause an immediate drop in your creditworthiness, it may also lead to an eventual improvement of your credit score.
Bettering your debt-to-income ratio
Before extending credit, creditors typically check to see whether you have the financial means to pay back what you borrow. Your debt-to-income ratio compares the amount you owe with your income. If you have too much debt relative to your income, you may have a low credit score. A bankruptcy filing may allow you to deal with your debt proactively. That is, if your income remains consistent while your debt falls, your credit score may gradually improve.
Why elderly bankruptcy is on the rise
Bankruptcy is a legal status where a person declares they are in a financial fix and might not be able to pay for their debts. Individuals, businesses, and even big companies file for bankruptcies all over the world.
What is alarming is the high number of older people filing for bankruptcy recently. A study by Social Research Network reveals that the number of seniors filing for bankruptcy in recent years is double the number that registered in the last 25 years.
In a bid to determine what could be causing this worrying trend, researchers reveal that the decline in pension fees and an increase in healthcare costs might be the major causes of the broke seniors. Data from the Consumer Bankruptcy project confirms that high healthcare costs could be the primary cause of the increased number of older people filing for bankruptcy.
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