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How Would A Chapter 7 Affect Someone’s Credit Rating Or Score?

One of the first things we do when someone comes to our office is get a credit report which shows what the person’s current credit score is. In 17 years of doing this and reviewing thousands of credit reports, we have seen that 90 plus percent of people who come to us already have a credit score that is below 600. The reality is that by the time someone comes to see us, their creditors are calling them, they have lawsuits going on, are behind on their mortgage and behind on their car payments so their credit will already be below 600.

Filing a bankruptcy will not ruin a person’s credit, because by the time someone even considers filing bankruptcy, their credit is already ruined. Nobody comes to see a lawyer when they are up-to-date on all their payments and nobody is calling them at 8 o’clock in the morning and waking them up or looking to repossess their car. The amazing thing about a bankruptcy is that it actually, in most cases, improves the person’s credit score. People do not realize it, but the reason is that once someone files a bankruptcy, their creditors can no longer report the bad debts on their credit report. The only thing they can do is report zero balance and the fact that the account was included in a bankruptcy. Getting all those bad debts off the credit report actually makes it start to improve after filing a bankruptcy.  People are always amazed by that.

Could A Chapter 7 Help If A Person’s House Was Foreclosed And Their Car Was Repossessed?

A chapter 7 will stop repossession or foreclosure on the house but it can only stop it for about 90 to 100 days, so if the person wanted to keep the car and the house, they would have to figure out how to get caught up on the house or the car payments during the chapter 7.  It is fairly common for people who are a month or two behind in their car payments, because they are being garnished and they have other issues going on and other debts they are trying to pay. The bankruptcy wipes out all the other debts, so they can catch up on those missed car payments and keep their car. The same thing is true with the house.  If a person is only a month or two behind and they file a chapter 7, getting all the other creditors off their back will allow them to free up some money to catch up on their mortgage.

Car repossession is generally obviously much quicker. They can come and get the car if someone is only a month or two behind. Mortgage foreclosures in Maryland take much longer, 8 or 9 months, so sometimes a chapter 7 can be filed and the person can apply for a loan modification or try to resolve the issue in some other way, but the chapter 7 buys more time to get that done. After the case is over the house or car in a chapter 7, will need to be made current again or else they will continue with foreclose or repossess the house or the car.

Would Someone Lose All Their Property If They Filed For A Chapter 7 Case?

It is the job of a bankruptcy attorney to protect the client’s assets in a chapter 7 bankruptcy and to make sure they do not lose anything in the bankruptcy. The idea behind a chapter 7 bankruptcy is to give the person a fresh start, and in order to make the fresh start, they are allowed to keep a certain amount of property in Maryland. It is the lawyer’s job to make sure they protect and keep all the property safe from the creditors, but if they cannot do that, they let the person know so they might not want to file a chapter 7 and may want to consider filing a chapter 13 instead. This would be a payment plan to pay the creditors instead of having to sell property to pay off the creditors.

There are cases where people have such overwhelming debt that they pay a few thousand dollars to the trustee because they own more than can be protected in a chapter 7. In these cases, because their debts are so overwhelming, so it is worth it to pay a few thousands to settle the rest of the debts.

We commonly see elderly people who have a house that is paid off but we just cannot file the chapter 7 because they would lose their house if we did. Those are unusual situations but my number one job is to make sure that the person does not lose anything in a bankruptcy, which is why someone should hire a bankruptcy attorney. If someone was considering going to a bankruptcy preparation place, they would not be told which property to protect because that is actually the practice of law. A lot of people lose tax refunds, which are common assets that people forget to protect or do not realize they have to protect in a chapter 7 bankruptcy.  People get large refunds but have to turn those over to the chapter 7 trustee because they did not know or realize how to protect them in a bankruptcy.

Can I Just Refinance My Home In Order To Save It From Foreclosure?

Refinancing is not really an option in today’s world. A lot of people used to refinance 5 or 10 years ago when the market was quite different, but they have really tightened up in all the lending requirements so it is much harder to get a loan now. If someone was in foreclosure, it would be unlikely for them to be able to find anybody who could refinance them. The good news is they can always file a chapter 13 and set up a payment plan to get caught up on the house, so that is basically a refinance. The person does not have to qualify for it as long as they can make the payment and they can get caught up on their house payments that way.

Would A Chapter 7 Be Able To Help Someone Who Owed Money To The IRS?

A lot of people are surprised to find out they can wipe out the IRS tax debt in a chapter 7 bankruptcy.  The main requirement is that the taxes have to be more than 3 years old, so right now, we are working on taxes from 2010 and before because they will be due in April 15th 2011. 3 years from that will be April 15th, 2014 and starting in April of 2015, we can start working on 2011 taxes. But the first rule is that it has to be at least 3 years since they were due. The person would have to file all of their returns and there are some time limits on that because the taxes have to be assessed more than a certain time period before that as well. These are all things we would check before we file the chapter 7 to make sure we can wipe out those taxes. As a general rule we may be able to wipe out the taxes of 2010 and before in a chapter 7 bankruptcy.

Would Someone Be Able To Obtain Credit While They Were On A Chapter 7?

A person would be able to buy a new car after filing a chapter 7 and some car dealers don’t even wait till the person gets their discharge. The person will get credit card offers in the mail after filing a chapter 7, most of them would probably be secured credit cards where the person would put down $500 and as long as they make the payments they can keep using the credit card. A person can also definitely obtain credit after filing a chapter 7. They can buy a house with an FHA loan 2 years after filing chapter 7. If a person’s goal is to buy a house and they think they can pay off their debts in 2 years, then they should do that, otherwise they should probably file the chapter 7 so the money they would be using to pay off their debts could be put in a bank account and in two years, they would be able to buy a house and use that money as a down payment.

Will Car Payments Be More Expensive Or Can A Chapter 7 Actually Make It A More Affordable?

A person’s credit score will not be top of the line coming straight out of chapter 7, so they would probably have to pay a higher interest rate. People belonging to a Credit Union may get 7 or 8 percent interest rate loans immediately after filing a chapter 7 bankruptcy. More mainstream car dealers might charge 14 to 15 percent but if someone went to one of the corner dealers for a “Buy here/Pay here” deal, they would probably end up paying 18 to 20 percent interest. A person’s best bet is to try to find a credit union to finance a new car if they really need a one. Hopefully by getting rid of the debts after a chapter 7, the person will either have a car that is either paid for or they would not owe too much on it so they can just hold on to that for a few years, which will allow them to save some money and make a fresh start, but on the other hand sometimes people desperately need a car to get to work so they do what they have to do but the interest rates will vary. The best interest rates will be from Credit Unions and the worst interest rates will be from the “Buy here/Pay here” kind of dealers.

For more information on Credit Ratings After a Chapter 7, a free initial consultation is your next best step. Get the information and legal answers you’re seeking by calling (855) 4MD-BANK today.

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