Surrender

In a bankruptcy, whether chapter 7 or chapter 13, you have the option of keeping the secured asset or surrendering it back to the lien holder, such as the bank. If you wish to surrender the asset, you will need to indicate that intent to your attorney so that the paperwork may be properly filed. If you wish to retain the asset, in chapter 7 under the BAPCPA, you are technically required to sign a Reaffirmation Agreement contract. Under the 2005 amendments, the Reaffirmation election should take place within 45 days of filing; however, there is a recession period. Regardless of signing the Reaffirmation Agreement, to keep a secured asset, you must keep current on those payments either directly or indirectly.

With a Chapter 7 Reaffirmation Agreement, where the budget is not positive, a hearing by the court will be required to determine whether or not the Reaffirmation Agreement is reasonable, the debtor's can afford the Reaffirmation Agreement payments, whether the asset is necessary for the bankrupt, and whether the agreement is proposed in good faith.

Judicial Liens

If you have been sued, you may have judicial liens on your house, which can be removed through bankruptcy. However, I can only get rid of these judicial liens if and only if you inform us about them. Certainly, if you do not tell us about them, I cannot remove them. If I do not proceed with the proper procedures they will remain as liens on your home even after you have filed bankruptcy. I cannot be held responsible if you decide to take this risk; therefore, you may be forced to pay for the judicial lien, along with Attorney's fees, costs, and interest to the date of payment. Since this is an extra procedure, an extra fee will be required. It is also recommended that if you are not certain as to judicial liens that you do a title check at the county building where these records are held or hire us to do a "search." To make the proper motion to have the lien removed, we can rely on your testimony and the assessed value; however, an appraisal may be required. You will be responsible to obtain and pay for any appraisal.

Fraudulent Transfers

A fraudulent transfer is any transfer made with the intent to hinder or delay or to fraud the trustee or any creditors. Under the 2005 amendments, it may be possible to go back in time up to 10 years regarding this issue.

Preferential Transfers

Transfers to a relative or friend, ("insider") within one year or to a creditor within 90 days for less than "fair market value" is considered "preferential transfer." Should this exist, the trustee would normally ask the judge to set aside the transfer as fraudulent. Therefore, even if a vehicle is sold or real estate is deeded in the name of another, the judge can issue an order reversing that transaction.

Credit Scores

There is no such thing as an "A-1" credit any longer. Now, all three credit reporting agencies use "credit scores". These are proprietary calculations (FICO); however, they are very similar in nature. Generally speaking, the range of credit scores is 350-800. Generally speaking, anything under 650, you will not receive any amount of credit, from 650-700 you will receive some credit, and credit scores that exceed 700 will receive most credit and the most beneficial rates.

Your FICO score uses 5 factors in which a 1000 score is possible. Although with some credit reports, only 900 or 950 is possible, they still use the same 5 factors. Filing bankruptcy may actually increase your FICO score. By paying on time after your bankruptcy proceedings, your FICO score will increase on average 100 points within 1 year. There are five factors that account for the 1000 points, and the FICO score is often used to deny a person employment with security risks or increase your insurance rates, especially vehicle insurance. Here is how the five factors add up to 1000 points.

1. Previous credit history; 350 points; 35%

Your credit history is the biggest factor in calculating your FICO's credit score. By paying on time and not having any slow payment or charge off accounts, you will increase your score as old accounts drop off your record and are replaced by a good payment history.

2. High levels of debt to income; 300 points; 30%

If you have a 40% income to debt ratio where 40% of your income is going to credit cards and credit card payments, there is no income left for new credit. Conversely, not having any debts automatically increases this ratio and your credit score, (after bankruptcy your income to debt ratio drastically reduced, thereby increasing your score).

3. Limited credit history; 150 points; 15%

If you have limited history, your credit score may suffer up to 150 points. Canceling older debt with a history will hurt your score. Newer credit counts less. Therefore, it is most advantageous to have credits that you have had for a period of time and do not use it.

4. New credit applications; 100 points; 10%

Every time you make a credit application, it could cost you more than $100. The reason for this is that it reduces your credit score automatically every time you apply for credit. Reducing your credit score means that when you do get credit, that you pay higher interest rates. Applying for credit deducts from your credit score; therefore, only apply if you are desperately in need of new credit.

5. Limited types of credit; 100 points; 10%

If you only have a car loan and you have no other type of credit, this will be deducted from your score. You should have at least three forms of credit. The most advisable is a home mortgage, a car loan, and a small revolving account with history of on-time payments of small balances with large available credit lines and no recent applications to maximize your score.

Prime, Sub-Prime, and Damaged Credit

Prime

If your credit score is from 600-1,000 you are considered a "prime borrower" and you should have no problem getting mortgages, cars, and credit cards and have excellent interest rates.

Sub-Prime

Credit scores below 600 are considered "sub-prime." You will have to pay higher interest rates, but there are lenders available. This extends down to a score around 500. The lower your credit score, the higher your rates and the harder it is to get credit; additionally, you may pay more in vehicle insurance and other rates.

Damaged Credit

If credit becomes too expensive to use. Buy with case. Any score below 500 is considered to be in the "damaged credit" zone. You may be able to get a credit card, but at such a high fee and such uselessly low limits that using it becomes impractical. Your interest rate is double the normal rates for prime borrowers. You pay more for insurance and are barred from some jobs. Bankruptcy is often your only way to repair damaged credit.