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Secured Credit Cards can be a very helpful tool when attempting to re-establish your credit after bankruptcy. They can also be useful for younger individuals seeking to establish credit for the first time. Hopefully, this video will help you navigate the maze of secured credit cards.
Most people know that Chapter 7 allows you to wipe out unsecured debt – credit card bills, medical debt and other signature loans. But what about secured debt – loans you are still paying to finance your home, your car, perhaps some jewelry or furniture?
This past March, I discussed redemption of property in Chapter 7. Redemption of property is a viable option but it is far less common than "reaffirmation" of debt.
Secured loans actually contain two different kinds of obligations. On one hand, you obligate yourself personally to pay a particular debt. This is typically in the form of a promissory note. The second layer of obligation ties the specific item of property to the loan. This is called a security agreement.
When you file a Chapter 7 and a discharge is issued by the judge, your personal liability on your secured debt is extinguished. This is why payments on a non-reaffirmed car loan or home loan will not be reflected on your credit reports. You have no personal obligation to pay. However, a Chapter 7 discharge does not extinguish the lender's security interest against property. This is why a vehicle lender can repossess or a mortgage company may foreclose to recover property. In such a situation you would not have any personal liability for any deficiency amount.
A reaffirmation serves two main purposes:
Because a reaffirmation agreement is a new contract between you and your lender, you absolutely can negotiate different terms. I have negotiated reduced payments, lower interest rates and reduced balances on furniture, electronics, and vehicles. I have also negotiated lower payments on 2nd and 3rd mortgages.
It has been my experience that some lenders will just not play ball. They would rather incur the expense of recovering, storing and reselling a used item. I think this attitude of "we do not negotiate with debtors" is silly and counterproductive, but some lenders take this position (I suspect that some of these lenders do not have the staff or protocol for handling a negotiated debt).
On the other hand, many lenders will agree to a deal with terms a lot better than the original contract. But you do have to ask, and, of course, if you agree to any terms, you must live up to the deal. Reaffirmation agreements can be canceled by the debtor within 60 days after the agreement is entered, or the case is closed, whichever comes first.
Here’s a relatively simple, but common, question I was asked by email this past week. The writer makes payments on his daughter’s car titled in his daughter’s name. The writer (the parent) wants to file Chapter 13 bankruptcy and asks whether his monthly payment for his daughter’s car can be included in his expenses so as to reduce the amount of his monthly Chapter 13 plan payment.
The answer depends upon whether the parent signed the loan. If the parent co-signed the daughter’ s car loan then the parent may include as an expense the loan payment, maybe. The Chapter 13 trustee may challenge inclusion of the secured loan for a car which the parent does not use and which is not necessary. The extra car should not be paid for, in effect, by the debtor’s unsecured creditors. If the debtor’s plan pays 100% of his creditors then the car payment on the daughter’s car should not be a problem.
If the parent did not co-sign the loan then the parent’s monthly payment is in effect a gift to the daughter. The debtor cannot include the gift as an expense because the debtor has no legal liability of payment. Even if the debtor proposes a 100% repayment plan the Chapter 13 trustee may disallow the “expense” so that the creditors are paid back in shorter time.
The Federal Trade Commission announced this week that according to a recent study, there has been an increase in the number of drug companies engaging in pay-to-delay deals with generic drug producers.
The FTC has denounced the actions, and with good reason: medical costs are one major contributor to many personal bankruptcy filings of U.S. citizens. So how might these types of deals affect you and your family?
Are Generic Drug-Delay Deals Legal?
Anyone familiar with antitrust laws may wonder whether deals to delay competitive drugs are even legal in the U.S. The answer is a little murky. It seems that the FTC has filed a number of lawsuits against pay-to-delay agreements and has demonstrated its support of bills in Congress designed to eliminate such activity among drug manufacturers.
How can you take action? While there may not be much you can do about the problem of pay-for-delay agreements, if you’re worried about paying your medical bills, you can (and should) ask your physician whether generic versions are available any time you need medicine.
A prospective Chapter 13 bankruptcy client currently makes about $30,000 per year salary. He wants to file bankruptcy as soon as possible to stop an ongoing lawsuit. Based on his salary alone, he would make relatively minimal payments to his Chapter 13 plan and over the five year plan would pay about 20% of his unsecured creditors.
Many years ago this person won a personal injury law suit resulting in a structured settlement in the form of an annuity contract with a national insurance company. Three months ago he received the final annuity payment of $40,000. He asked whether the annuity payment will be treated as income for the purpose of determining the Chapter 13 plan payment. If included as income, his plan payment would increase substantially but he would not have any future annuity payments forthcoming to help pay the higher plan payment.
The annuity is an exempt asset. Florida statutes, and Florida case law, also exempt annuity proceeds even after the annuity proceeds are received and deposited in a financial account. The annuity and the proceeds would be exempt if the debtor filed Chapter 7.
The annuity payment three months prior to bankruptcy should not be treated as income. It is not a recurring payment. There will be no future annuity receipts during the Chapter 13 bankruptcy. Most importantly, to include the annuity receipt as income deprives the annuity proceeds of their exemption from creditors because the higher plan payment attributed to the “annuity income.” would effectively force the Chapter 13 debtor to pay during the Chapter 13 plan an part of the money received from the exempt annuity. Assets owned by the debtor at the filing date which assets would be exempt in a Chapter 7 bankruptcy should not be captured indirectly in a Chapter 13 plan.
To consumers struggling to make ends meet, advertisements for credit repair or debt settlement may sound like the perfect solution to their financial woes. But in some cases, these services do little or nothing for consumers’ debt problems and instead sap their finances and leave them in need of bankruptcy protection.
Before you sign up for any service that promises to improve your credit, make sure you understand the potential risks involved in such offers.
Credit repair offers (which are often scams) generally advertise their ability to “wipe out negative information” on a credit report or provide a “quick and legal” way to improve your credit. But the truth is this:
Another commonly advertised financial service is debt settlement. While some debt settlers are legitimate and can be helpful to those in financial need, others are less scrupulous and simply take customers’ money without helping them much in exchange. Here’s the truth:
With the housing market headed for what some analysts are calling a double-dip downturn, there’s been a lot in the news lately about homeowners who strategically default on their mortgages. Here’s a look at what that means, how strategic default relates to foreclosure and what you need to know if you’ve got a mortgage you can’t afford.
What Is a Strategic Default?
The mortgage manipulation known as the strategic default works like this:
A strategic default is a conscious choice on the part of a homeowner to stop making mortgage payments, even if those payments are still affordable. Those who choose to strategically default often indicate that they are no longer willing to pay for a loan worth more than their house.
“Regular” foreclosure happens when a homeowner can no longer afford a mortgage loan and so has no choice but to stop making payments. In both cases, the homeowner loses the house to the lender; in strategic defaults, doing so is a conscious decision on the part of the homeowner.
What Are Other Options for Struggling Homeowners?
Because of the serious credit consequences and questionable ethical nature of strategically defaulting, many homeowners are not willing to do it, even if their loan is bigger than they’d like. Alternatives include:
One of the biggest problems in a Chapter 13 bankruptcy is failure to make plan payments. As we all know, individuals in Chapter 13 bankruptcy are required to make monthly payments for 36 to 60 months, unless all creditors are paid in full prior to that time. For any number of reasons, an individual may have something happen in their lives which will cause them to miss a payment to the Trustee's office. When this happens, it is important to speak with your attorney's office. Otherwise, the Court will dismiss your bankruptcy case if payments are not made. Therefore, it is very important to keep good track of your payments.
Almost all of my blog posts are intended to inform prospective bankruptcy debtors. This post is intended to help bankruptcy trustees.
I wrote a post on my asset protection blog about Florida’s annuity exemption being limited to annuities issued in Florida. The post explained that Florida residents who purchased an annuity while they resided in another state before moving to Florida may find that their annuity is not exempt under Florida law. Most annuity contracts state that the law applicable to the annuity is the law of the state where the annuity was issued which in most cases will be the state where the debtor resided when the annuity was sold. The question is in not where the annuity company is located; it’s where the debtor/owner lived when he entered into the annuity contract.
Florida debtors cannot export Florida’s exemptions to another state. I believe that an annuity which was purchased and issued in another state whose laws do not exempt annuities may not be exempt when the debtor subsequently files bankruptcy in Florida. The same issue applies to other assets outside Florida, such as IRAs, which were opened and still maintained in offices and accounts in another state.
Steve Carell is saying farewell to "The Office" tonight. This means saying goodbye to one of our favorite characters on TV: Michael Scott, the energetically awkward boss of Dunder Mifflin's Scranton branch whose love for his employees is only outmatched by his lunacy.
In one of our favorite moments from the show, Micahel is, like so many other Americans, besieged by credit card debt. After weighing his options he decides that declaring bankruptcy is the best one. Except, instead of hiring a bankruptcy lawyer he, in typical Michael Scott fashion, took his own route:
Good luck, Michael Scott.
