Credit Reports

Everyone should be in the habit of checking their credit reports once per year.  Remember that you are entitled to a free credit report (charges apply for credit scores) once every 12 months from all 3 major credit bureaus by way of annualcreditreport.com.
If you need to dispute errors that you find on your credit report, visit the FTC website here.
If you need information pertaining to your bankruptcy case, including replacement copies of your discharge order or bankruptcy schedules, go here for additional information.

Reaffirmation Agreements That Never Were

Scenario:  John Doe filed Chapter 7 Bankruptcy in 2013, discharging about $60k in unsecured debt while reaffirming on his mortgage and car loan.  He has never missed a payment since his bankruptcy case was filed.  Now, 2 years later, he has pulled his credit report and is dismayed to find out that while his auto loan payments have been reported, his mortgage payments have not.  As a result, his credit score hasn’t improved as much as he would have hoped by now.  He calls his bankruptcy attorney and finds out that while he entered into a reaffirmation agreement on the auto loan, he did not enter into such an agreement on the mortgage.  Instead, he was doing what is referred to as a “ride through” – making payments sans a reaffirmation agreement.
Why is this happening?
To be honest, we’re not really sure.  Last October, after the conclusion of the Annual Bankruptcy Update in Milwaukee, I had a discussion with 7 other attorneys concerning a lender’s requirement to report payments with or without a reaffirmation agreement.
On the one hand, the Fair Credit Reporting Act (FCRA) only requires creditors to make accurate reports to the credit bureaus.  It does not, however, confer an affirmative duty to report at all.  In other words, any creditor can choose to report or not report, but if they do report, those reports must be accurate.
There was nothing in either the FCRA nor the bankruptcy code that any of us were aware of that indicated that lack of a reaffirmation agreement meant that a lender could not report payments, nor that filing a reaffirmation agreement forced a lender to report payments.  (In fact, it is entirely possible that payments might not be reported, even if a reaffirmation agreement is filed.)
It just seems to be “the way it is” – a matter of convention and policy rather than law.  At least one attorney reported being told by a creditor that the creditor’s policy was to not report without a reaffirmation agreement because to do so would be a violation of the discharge injunction.  Not only do we feel that argument is specious, but the inducement that creditors are making (no reaffirmation, no reporting) might itself be the bigger violation of the discharge injunction.
To the best of my knowledge, this has not yet been litigated in this district.
Can a reaffirmation agreement be filed now so that my payments get reported?
No.  At least, not in the Eastern District of Wisconsin.  The judges here (and I imagine in most districts) have a very strict policy that reaffirmation agreements will not be approved if they are entered after the discharge order is issued, and that cases cannot be reopened for this purpose.
Whose fault is this?
Usually, it’s nobody’s fault.  Reaffirmation agreements are voluntary agreements between a debtor and creditor.  A creditor cannot force an unwilling debtor to enter into an agreement, nor can a debtor force an unwilling creditor to enter into an agreement.
Unless someone deliberately obstructed transmission of the agreement, or if the debtor failed to notify the creditor of their intent, or if the creditor simply neglected to draft the agreement – there is no blame.
Why didn’t my bankruptcy attorney draft the reaffirmation agreement?
I have yet to meet a single debtor attorney who drafts reaffirmation agreements.  And I think we all refuse to draft them for the same reasons.  Reaffirmations are agreements between the creditor and debtor.  I’m happy to review the agreement, advise in favor of or against signing the agreement, and signing off on the agreement when appropriate.  But the agreement should still be drafted by one of the parties to the agreement.  And the creditor has access to contractual information (interest rates, maturity dates, current payoff balances, etc.) necessary to properly complete the agreement that the debtors’ attorney may not have access to (at least, not all of the information).
This is the worst thing ever!
Not necessarily.  Reaffirmation agreements turn otherwise dischargeable debts into non-dischargeable debts.  Yes, secured debts like mortgages and auto loans are dischargeable and presumed to be discharged in the absence of a reaffirmation agreement.  One of the nice things about a ride-through is that it allows you to retain your property without assuming the risk of having to pay a deficiency if you ever default and have your property repossessed.
In other words, let’s say a year after you file for bankruptcy, you default on your mortgage payment.  Without the reaffirmation agreement, the lender is only empowered to foreclose the property.  They cannot collect a balance from you.  With the reaffirmation agreement, they can foreclose AND collect a deficiency balance from you.
In fact, the only good reason to sign a reaffirmation agreement is for the credit reporting to help rehabilitate your score.  But there are other ways to rebuild credit.
I still want my payments reported, gosh darn it.
You have a couple of options, but none guaranteed to work.
  1. Talk to the lender.  Ask them to report your payments.  (This works better with smaller local banks and credit unions than it does with the big banks.)  If the creditor failed to provide you with an agreement – tell them that you would have signed the agreement if they had drafted one.  Since they chose not to, it’s hardly fair to punish you for their inaction.
  2. Refinance.  This is going to be difficult without the payment history to help rebuild your credit.  If you’re refinancing with the same lender – many of them refuse to refinance because of the lack of the reaffirmation agreement (which is really stupid, because with the refinance, they have a legal claim to the money; without it, they do not).
  3. Dispute the lack of reporting with the credit bureaus.  This has been suggested by a few attorneys.  Gather evidence of all of your post-petition payments and send them in to TransUnion, Experian, and Equifax.  Explain that your payments haven’t been reported because a reaffirmation agreement was not filed.  The problem with this approach is that – if you’re disputing a credit reporting error – there’s no error to correct.  Again, FCRA only requires that creditors report accurately, it does not require them to report at all.  Even if the credit bureaus do amend your report to show the payments, it still doesn’t mean that your lender will report payments going forward, which means that you will have to continually update the bureaus yourself.

Is Bankruptcy the Best Option for Me?

Can I file bankruptcy?

Should I file bankruptcy?
Is bankruptcy right for me?

My first job out of law school was for a highly profit-driven law firm that believed that everyone could benefit from bankruptcy in some way, and that there was no excuse for an attorney to not get a prospective client to retain our services.
I won’t say who that law firm is, but you can identify firms like these pretty easily.  Many of them will have a short survey posted on their website that asks you a few questions to determine if you should file for bankruptcy.  The survey is coded and rigged in such a way that no matter how you answer the survey (or if you answer ‘yes’ to even one question, and the questions are designed that 99% of people would), then the result would be a profound warning that you needed to file for bankruptcy right away.
That law firm I used to work for – and other firms like it – are absolutely wrong.  Bankruptcy is not for everyone.  Admittedly, it is true that there are few people in the world who – if they filed for bankruptcy – would not get any benefit from it.  But those people are out there.  Sometimes they land in my office.  If someone would not benefit from bankruptcy – I will tell them, even though it costs me business.  I, as all attorneys do, have a duty and ethical obligation to look out for my clients’ (and prospective clients’) best interests.
So… rather than post a gimmicky survey, I’m going to walk you through some of the factors you should consider if you’re thinking about bankruptcy.  It won’t be as easy and fast to go through as a six question survey, but I feel that you will have a much clearer idea of what you need to do after reading this article.
Of course, since I can’t know the specifics of your financial circumstances, this article paints with very broad brush strokes.  There is no substitute for getting a consultation from an experienced bankruptcy attorney who can analyze your particular situation.  Most attorneys – including myself – offer free initial consultations.  There is no risk or commitment.  Just an opportunity for you to arm yourself with information and options.
Fundamentally, what is bankruptcy?
Declaring bankruptcy, in its most fundamental sense, is nothing more than asserting that you cannot afford to pay all of your debt obligations as they become contractually due.
Put another way, if your income is X, your ordinary living expenses are Y, and minimum payments on your debts is Z, then X – Y < Z.  The shortfall could just be a few dollars a month, or a few thousand.  Either way, the equation is unbalanced.  Ideally, you want it to look like either X – Y = Z or X – Y > Z.
But I’m not poor…
Bankruptcy is not just for poor people living off of unemployment benefits or food stamps.  In fact, many people on public benefits would benefit the least from bankruptcy protection – essentially because they have little or nothing to lose.  In Wisconsin, those receiving public assistance are protected from having what little wages they have from being garnished.
People have a tendency to look at key items of their financial circumstances in isolation.  “I make $100,000 per year, therefore, bankruptcy isn’t for me.”  “I only have $10,000 in debt, therefore, bankruptcy isn’t for me.”  Well, if you’re making $100k a year and only have $10k in debt, I might be inclined to agree.  But if you’re making $100k a year and trying to pay back $500k in taxes – then you might need some help.  And a single mother raising two kids on $30k a year might get a lot of benefit from bankruptcy even if her debt is only $10k.
It’s not just about your debt or your income, but your debt-to-income ratio.
But I have excellent credit…
Have you pulled your credit report and score?  Recently?  Most people who tell me this haven’t.  They think their credit is excellent because they have never missed a payment.  But your credit score is much more than just a record of your payment history.  Your credit score is affected by numerous factors, including your income, your assets, debt-to-income ratio, minimum monthly payments, number of active accounts, types of credit accounts, your indebtedness relative to your available credit, residential stability, occupational stability, length of credit history, and credit inquiries.
All we’re saying is – if you’re reading this article and you haven’t pulled your credit recently, it might not be as high as you think.
That being said, impact on your credit score is a valid concern.  Bankruptcy does negatively impact your credit – there’s no denying that.  If there is a feasible way to get out of debt without bankruptcy, it is something worth considering.
But bankruptcy isn’t a permanent black mark against your credit, either.  I tell my clients to think of bankruptcy as a reset button on a video game.  You start with a clean slate – just like when you turned 18.  No credit.  You start over and build a new history.  If you happen to have a preexisting debt that will survive the bankruptcy (mortgage, car loan, student loan, etc.), that will help you rebuild even faster.
I’m not in trouble… yet.
If you think you’re headed down a path where bad things are going to happen, talk to an attorney now.  Don’t wait until disaster strikes.
  • Has a creditor filed a lawsuit against you?  They may be looking to garnish your wages.  Why wait until after your wages have started to be garnished before speaking to an attorney?
  • Have you not paid your utility bills all winter?  Your services will likely be disconnected on or after April 15.  Why wait until April 14 to do something about it?
  • Are you behind on your car payment?  In Wisconsin, it doesn’t take long for a creditor to repossess a car.  If they do, you have a very short window (and limited possibilities) to get it back.
  • Are you falling behind on your mortgage payment?  Foreclosure takes a bit longer in Wisconsin, but the longer you wait, the more expensive it could be to stop the foreclosure action.  Don’t gamble with your home by waiting until the eve of the Sheriff’s Sale to speak to an attorney.

It doesn’t necessarily have to take a long time to file a bankruptcy case.  But to do it properly, you should plan on meeting with an attorney several weeks (if not months) before you need to file for bankruptcy.  Why so long?
Chances are that you are not your attorney’s only client.  Your attorney will need time to prepare a proper petition for you, to review all of the relevant documents and information you provide, and to advise you accordingly.  If you drop a case in your attorney’s lap and expect him to drop everything and file a case for you in 24 hours – you can expect the quality to suffer, and you can expect problems.  In fact, I would urge you to avoid any attorney willing to file a case that quickly.
Furthermore, you are going to have certain obligations and responsibilities in bankruptcy.  You’re going to want time to digest these, and make sure that you’re making the right decision before you commit to filing your bankruptcy petition.
Okay, I want to file bankruptcy.  Here’s some information.  Get it done for me.
Bankruptcy is a privilege, not an absolute right.  And it’s a privilege that usually confers a tremendous financial benefit.  In exchange for that benefit, the bankruptcy court is going to have some expectations of you.  They expect a full disclosure of your income, assets, and debts – to determine what, if anything, you can reasonably be expected to pay on your debts.  They also expect you to conduct yourself in a manner that doesn’t unfairly and unjustly impact your creditors (meaning not racking up a bunch of debt right before you file your case, not paying certain creditors at the expense of others, and not selling or giving away valuable assets).
Your attorney’s job – my job – is to help guide you through this intensely bureaucratic process; to advise you to avoid legal pitfalls; and to make sure that you follow the laws and procedures properly.  But that doesn’t mean you can sit back and not take an active and serious role in your own case.  If you cannot bring yourself to disclose information or to follow explicit instructions and advice from your attorney, then you may want to seek some other form of debt relief with less rigid expectations.

Bankruptcy Mythbusting #3

Myth:  I don’t want to file for bankruptcy because it will damage my credit and I have great credit now.
Fact:  This myth is composed of about one teaspoon of fact and two cups of fiction.  The teaspoon of fact is that yes, your credit will take a hit after you file for bankruptcy.
The first cup of fiction is believing that you have great credit right now.  If a person’s finances have become so distraught that the person has made an appointment with me to discuss bankruptcy, their credit is usually worse than they think it is.  Most people think that their credit rating is based solely on their payment history, and because they are current on all of their bills, they must have excellent credit.
In fact, credit scores are based on several items – only one of which is payment history.  The algorithms for determining credit score are a tightly guarded trade secret held by the credit bureaus, so there are only a few people in the world who know with certainty what affects credit and by how much.  What we know, however, is that your credit score is impacted by:

  • payment history
  • debt to income ratio
  • types of debts
  • number of open accounts open
  • available / unused credit
  • residential and employment stability
  • and much more…

No matter what sort of bankruptcy you’re filing under, bankruptcy is generally a debt to income ratio problem.  Even millionaires can file for bankruptcy.  The issue isn’t how much money you make, but whether that income is sufficient to pay back your debt as it becomes contractually due.
The second cup of fiction is that your credit is ruined forever.  While it is true that the bankruptcy remains on your credit for up to ten years, your credit score can be rehabilitated.  Think of bankruptcy as resetting you to when you turned 18 and had no credit.  You start over from scratch.
If you’re lucky, you will have debts that survive bankruptcy, like a mortgage, car loan, or student loans.  These debts already exist, so you don’t have to reapply for them.  You can continue making payments on these debts and use them to re-establish your credit worthiness.  Filing Chapter 13 can also help rebuild credit a little faster than it would in Chapter 7, because you’re paying back some of your debt, plus the regular plan payments and payments from the trustee help.  If you file under Chapter 7 and don’t have any surviving debts, small secured loans (furniture and appliance loans) are a great way to get back on your feet.
When done correctly, most people have substantially better credit scores about 12 months after filing bankruptcy than they did going in.
Also bear in mind that your bankruptcy will – in some respects – make you less of a credit risk.  People filing for Chapter 7 Bankruptcy can’t get another Chapter 7 discharge for 8 years.  New creditors know that one way or another, they’re going to get paid for the foreseeable future.  Also, with all of your unsecured debt now eliminated, you now have a better debt to income ratio, and presumably, an increased ability to pay back new debt.
An experienced bankruptcy attorney can look over your financial circumstances and give you advice on the best ways to rebuild your credit after bankruptcy before you make any commitments.  Want to find out what bankruptcy could mean for you?  Call (920) 490-6160 now to schedule a free consultation.