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How are credit scores calculated?
A great credit score can get you great interest rates on loans, help you secure employment, and even make the dream of owning a home a reality. There are a lot of different factors looked at when calculating a credit score, each of which gives an indication of your financial soundness.
Payment history
Your bill pay history has the most significant impact on your credit score. Late and missed payments typically bring your score, with more recent payment issues having a greater impact than late and missed payments in the past. A poor bill pay history makes up about 35% of your total credit score.
Amount of debt
Credit utilization is the amount of debt you currently have vs. how much your credit balances are. A high debt-to-balance ratio causes lenders to question your ability to pay back loans. For a good credit utilization score, your credit card balance should make up about 30% of your credit limit.
What can be discharged after Chapter 7?
If you are filing for Chapter 7 bankruptcy in the state of Maryland, you are probably looking to understand the whole process. While you will be counseled thoroughly throughout the bankruptcy process, it is also important for you to know what happens after you leave court. The entire point of going through Chapter 7 is to help you get back on your feet, but not all debts may be discharged under Chapter 7. According to FindLaw, there are even some debts that cannot be discharged under Chapter 7 that may be discharged under Chapter 13.
The vast majority of unsecured debt will be discharged as you go through Chapter 7. However, there are some very important exceptions to the allowed discharges. For example, if you have government-funded student loans, these are not able to be discharged. You are also still responsible for any child support or alimony that you are responsible for paying. If you have most varieties of tax debt, tax liens, or cooperative housing fees these are also not dischargeable.
After a divorce, your credit may take a hit
Many things change when you get a divorce in Maryland. You have to learn to live as a single person again. You need to parent your children by yourself. You may have to move. There may also be a change to your credit report. It is not uncommon to have a drop in your credit score, especially if there are issues with joint debts.
Experian explains that while the court may order your ex-spouse to pay a portion of the debts you had together, it does not mean that your former spouse will do that. If he or she fails to pay the debt, you still have a responsibility in the eyes of the creditor to pay the debt. If this happens, your credit score could take a nosedive if you do not pay.
Going back to court
You could go back to court and bring the issue before the judge. However, this is not a swift solution. It will take time to get through court and hold your ex-spouse responsible. In the meantime, the creditor will work to collect its money, and your credit report will reflect this action.
What happens during a Chapter 13 bankruptcy?
Many people in Maryland and elsewhere assume that bankruptcy is all the same – that you apply for a personal bankruptcy, get a discharge of your debts and start over with a clean slate, albeit a mark on your credit report for several years. However, bankruptcy is not always so simple. There are different types of personal bankruptcy that can apply to people in diverse financial situations.
In a Chapter 13 bankruptcy, for instance, your debt is not fully discharged. Instead, you have the opportunity to restructure and repay your debts in a more manageable way, according to the Administrative Office of the U.S. Courts. Why would you choose a Chapter 13 bankruptcy over Chapter 7, which is knowns as the "clean slate bankruptcy" for its ability to discharge most types of debt? With a Chapter 13 bankruptcy, you may protect your home from foreclosure, as well as other qualifying assets like additional vehicles, home furnishings and appliances. Also, having a steady income may simply disqualify you from applying for Chapter 7 but allow you to utilize Chapter 13. Chapter 13 bankruptcy works in the following ways:
What should I know about filing taxes during bankruptcy?
Filing your taxes is often confusing. It becomes even more so after filing bankruptcy in Maryland. There is one part of the tax law that may concern you a little in regards to your bankruptcy and the discharged debts. According to U.S. News and World Report, the IRS generally considers any forgiven debt as income. This could really cause alarm for you because all of the debt discharged in your bankruptcy is technically forgiven debt. So, should you be fearful of a large tax liability due to your bankruptcy?
While the general rule is that your discharged debt is taxable, the law has an exemption for this situation. So, you should not worry. Any debt discharged through bankruptcy is not taxable under the IRS rules.
The government is actually on your side in this case. It recognizes that you have gone through a tough financial situation. Coming out of a bankruptcy leaves you in a very vulnerable financial situation. It is likely you have very few assets left, and you certainly do not have savings to pay for any unexpected tax debts. The government gives you a break on your taxes and does not hit you with a large tax liability that would probably cause you financial distress at a time you are supposed to be rebuilding your finances.
Applying for certain jobs may require a credit check
Filing for bankruptcy protection in Maryland may require planning for the future. A potential employer may run a credit check on job applicants before making a hire. This may be in spite of the Old Line State's Job Applicant Fairness Act which prohibits employers from using a candidate's credit report to hire or fire them.
Some companies are exempt from the Act's requirements and may use the information from a credit report to make a hiring decision. These employers may lawfully look into a candidate's credit history. A credit report check could also determine eligibility for a promotion in some cases.
Certain circumstances permit pulling a credit report in Maryland
State and federal entities that require pulling a candidate's credit report as part of a comprehensive background check are exempt from the Act's prohibitions. Banks, credit unions and financial institutions with deposits insured by a federal agency are also exempt. An employer in Maryland may lawfully check an employee's credit report for an individual who is already an employee if it does not affect the job's terms and conditions or pay rate.
Studies show gray bankruptcy is on the rise
You expect your golden years in Maryland to be a time of relaxing and enjoying life. Debt can crush those expectations, though, and fill every day with stress. At The Law Office of Donald L. Bell, our legal team often helps retirees to gain the freedom that debt has denied them.
According to U.S. News & World Report, you are not alone in suffering from overwhelming debt after turning 65. In fact, millions of older Americans are in the same situation, a fact that two recent studies have proven. Researchers discovered that one out of every seven people who file for bankruptcy are 65 or older. This equates to five times the number of retirement-aged people who filed 25 years ago.
What is behind the trend of gray bankruptcy? The reasons given by survey respondents may sound familiar to you. Almost 70% said their financial struggles were the result of a drop in income due to job loss or retirement income that was insufficient to meet their needs. Over 62% said medical bills they could not pay led them to file. About 40% said their insufficient income was the result of medical issues that caused them to miss work.
Lien stripping second mortgages in Chapter 13 bankruptcy
Homeowners in Maryland who are struggling to pay their monthly expenses may want to consider bankruptcy to find relief from the stress of overwhelming debt. The U.S. Courts explains that Chapter 13 bankruptcy allows people who have a reliable income that does not cover their debts each month to create a repayment plan that they can live with.
In many cases, bankruptcy filers are able to keep their homes. But what if there is a second mortgage?
First mortgage vs. second mortgage
According to the Bankruptcy Bar Association for the District of Maryland, Baltimore Chapter, in Chapter 13 bankruptcy, the bankruptcy trustee includes the first mortgage and any past-due payments in the reorganization so that the borrower is able to catch up and keep current on the loan. As long as he or she makes the monthly bankruptcy payments, the lender will not repossess the house.
How do I handle taxes during a bankruptcy?
If you file bankruptcy in Maryland, then you may know that there are some debts you must continue to pay. If you file a Chapter 13, the IRS explains there are certain things you must do in regards to your taxes. If you fail to do them, then you could end up having your bankruptcy dismissed, which means you cannot get help or protection through the process.
The IRS explains that it is essential to pay any taxes that come due during the course of your case. You should also file all your taxes and make sure you are current on your filings. You want to be sure that you have filed all your tax returns in the four years prior to your bankruptcy specifically.
You may be able to get assistance if you cannot pay your taxes and bring things current. The IRS does offer payment plans and something called an offer in compromise. You should get more information on these options if you want to consider them. The IRS has a helpline you can call for more information.
Getting started on credit counseling
Maryland families should not have to live in fear of creditor harassment. That is why some people decide to file for Chapter 7 bankruptcy as a way to discharge burdensome debts and make a fresh financial start. But if you are thinking of bankruptcy, you must first complete a session of credit counseling, or a court will not allow your case to proceed.
According to Nerdwallet, your credit counselor will discuss with you the advantages and disadvantages presented by bankruptcy. Before you file your bankruptcy petition, you should know what you are getting into and have an opportunity to discuss any concerns that you may have. Your counselor will also get into alternate means of resolving your debt, though in many instances people who entertain bankruptcy have no choice or have already worked through alternatives.
FindLaw explains that a pre-bankruptcy counseling session is not complicated and can be accomplished in about an hour. Bankruptcy counseling can be conducted by directly speaking to a counselor in person. However, if you are elderly and cannot leave your home very easily, or if distance is a problem, a credit counselor can accommodate you by conducting the session online or with a telephone call.
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