Credit Report Questions - Part One

by Natasha Meruelo, Esq.

How Long Is A Debt On Your Credit Report?

Clients often come into my office confused about the information on their consumer credit report and want to clean up negative information on their report.

Delinquent accounts are often a barrier to clients obtaining new credit, which can be integral to helping you clean up your credit and obtain products and services you need.

So, let's go over some basic rules about how credit reporting of negative information works.

The Fair Credit Reporting Act

The Fair Credit Reporting Act or FCRA sets forth rules related to information that may be contained in credit reports. The following items can be reported on your credit report (also known as a consumer report)(See § 605 - 15 U.S.C. § 1681c).

1. Bankruptcy cases - no more than 10 years 'from the date of entry of the order for relief (filing) or the date of adjudication (discharge), as the case may be'.  

2. Civil suits, judgments and records of arrest (from the date of entry)- no more than 7 years.

3. Paid tax liens (from the date of payment)- no more than 7 years.

4. Accounts placed for collection or charged to profit and loss ("charged off") - no more than 7 years. HOWEVER:

• The 7 year period begins when the delinquent account is placed for collection, charged to profit and loss or subjected to any similar action.

• An account will not usually be placed for collection or charged to profit and loss until 180 days have passed since the delinquency began.

What this means: The 7 year period won't begin to run until the account is more than 180 days past due. So, making "partial payments" or any other payments that prevent the debt from getting charged off can mean this debt may legitimately be on your credit report for longer than 7 years.

5. Any other adverse item of information- no more than 7 years.

6. Generally speaking, there are also restrictions on the reporting of medical debts in order to protect the nature of the medical services, products or devices used by you from being disclosed.

BUT, these rules do not apply to consumer credit reports that may be used in connection with a) credit transactions which involve $150,000 or more, b) insurance underwriting for insurance with a face amount of $150,000 or more or c) employment of an individual who is expected to be paid $75,000 or more. 

So, mortgage companies, insurance companies and potential employers may be able to access negative data about you that normal consumer finance companies will not know about you even after the time frames above have passed. It is therefore in your best interests to nip negative credit information in the bud as soon as possible before too long a record develops.

How Bankruptcy May Be Able to Help You

I often recommend that a client consider bankruptcy sooner rather than later in order to avoid negative credit information piling up. As explained above, negative information can be accessed by some creditors for a lot longer, so having minimal negative credit information is ideal. 

Once you receive a bankruptcy discharge, debt cannot continue to spiral out of control, be placed for collection or charged off. This is because a bankruptcy discharge eliminates your liability for the debt and therefore your obligation to pay for it (which is another benefit of bankruptcy). 

Debts discharged in your bankruptcy case are typically reported as having a $0 balance and discharged in bankruptcy. A creditor certainly cannot continue to report the debt as having a balance due. These trade lines should drop off after 7 years and will no longer be visible to typical consumer creditors (lending you less than $150,000, not selling you insurance or pulling it for employment purposes). 

Creditors who look at your credit report will also see that you have a much lower debt to income ratio after the bankruptcy discharge compared to your ratio pre-bankruptcy. Creditors also know you cannot file bankruptcy again until certain time frames have passed and may view you as a better credit risk than a similar person with similar income who has debt (even if they are not delinquent). This is because since you have less debt, you have more ability and resources to pay for new credit.

Judgments will not automatically fall off your credit report, but they will be unenforceable against you personally and there is a way to remove them from your county clerk's records here in New York State as a result of your bankruptcy discharge.

Finally, debts discharged in bankruptcy have no tax consequences.  Debts  discharged through debt settlement or even as a result of the creditor's decision to forgive them often result in 1099-c income, which means you may end up owing money to the IRS.

Bankruptcy has many more benefits as well and if you are considering bankruptcy, you should always consult with a qualified bankruptcy attorney to understand your options.

Next Up: Re-Aging of Old Debts On Your Credit Report, Disputing Information on Your Credit Report and Collection of Time Barred Debt

Questions or interested in a free consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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Settling Debts vs. Filing Bankruptcy

What Option is Best for You?

by Natasha Meruelo, Esq.

A lot of clients come into my office and ask about whether debt settlement or bankruptcy are best for them. In my opinion, if you are eligible for bankruptcy, bankruptcy is a much better option most of the time. Let me explain why.

If you qualify for Chapter 7 bankruptcy and your assets can be protected, you generally do not have to pay back any of your debt. There are exceptions for tax debts already owed and other priority debts like child support or alimony however credit cards almost never have to be paid back. If you are eligible for this option another benefit of discharging your debt in bankruptcy is that you will not have any income tax consequences. This is because any debts discharged in bankruptcy are excluded from your gross income according to IRS' own rules. In comparison, any debts you settle or which a creditor voluntarily chooses not to collect may cause you to receive a 1099-c and you may have to pay income taxes on any amount in excess of $600 which you were forgiven or did not have to pay. This is known as cancellation of debt income. So, unfortunately, if you choose to settle your debts for less than you owe, you may end up owing the government taxes.

If it turns out you are only eligible to file Chapter 13 bankruptcy, this is often still a much better alternative to settling debts. Just like in Chapter 7 bankruptcy, you do not have the taxable income problem if you receive a discharge. Your money and payments also go further in Chapter 13. This is because generally speaking, you pay your unsecured debts back at 0% interest and often for just pennies on the dollar. If you must pay secured debts in your Chapter 13, then you can often repay them over 60 months, possibly lower your interest rate and pay any arrears you owe on secured debt interest free. If you owe taxes, you can also derive a lot of benefits from Chapter 13 including eliminating penalties, stopping further interest from accruing, amongst other benefits.

Finally, one of the best parts of bankruptcy is the automatic stay. Many times, when you are negotiating settlements or working with a debt consolidator, you may end up getting sued by your creditors and have a judgment entered against you. While this is not fair and may have other legal implications, it does happen. In bankruptcy, all lawsuits and collections must stop and creditors cannot pursue you in multiple ways. They have to stop the harassment and your debts will be dealt with in the bankruptcy court.

So, if you are interested in saving money, avoiding possible tax problems and stopping creditor harassment, bankruptcy can be a very good way to accomplish all of these things.

Questions or interested in a free consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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How Bankruptcy Can Help You Keep Your Car

And possibly lower your payment too

by Natasha Meruelo, Esq.

Most of the time, people think about bankruptcy as a way to help them eliminate their debts and start fresh. But, did you know that bankruptcy can also help you keep your car or even lower the overall amount of money you have to pay for your car?

In Chapter 7 bankruptcy, if your car is less worth than what owe on it, you have the option to redeem your car for its actual value. What does this mean? This means that if your car is worth $5,000 and you owe $10,000 on it, you can pay $5,000 for your car. This is done by filing a motion for redemption. However, you must be prepared to pay your lender that $5,000 immediately.

What if coming up with the funds is too difficult and redemption is not a possibility for you? Well, in that case, Chapter 13 offers you some options that may make this easier. In Chapter 13 you can spread out your whole loan balance in a repayment plan of up to 60 months. So, if you have 2 years left on your loan, you may be able to spread out the balance owed over five additional years. This will lower the amount you have to come up with less each month to pay for your car. In addition, in Chapter 13, you can reduce your interest rate to what is known as the "Till" interest rate which is generally prime plus 1-3%. So, in today's market, that would be about 5.25%. If you purchased your car more than 910 days prior to your bankruptcy filing and it is worth less than what you owe, you may also be able to reduce your loan balance to your cars current value and also reduce your interest rate.

Bankruptcy, especially Chapter 13 bankruptcy, can be an excellent way to help you keep your car and save you some money at the same time. If you are having trouble paying your credit cards or any other debt and are also having trouble making your car payment, make sure to consult with a bankruptcy attorney to compare what options you may have. The relief available to you may be greater than you think!


Questions or interested in a free consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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So Your Bank Won't Give You a Modification? 

You May Be Able to Modify Your Own Mortgage.

 by Natasha Meruelo, Esq.

Sadly, too many homeowners come into my office after numerous failed attempts to work with their bank to modify their mortgage. There can be many different reasons why your bank wouldn't modify your mortgage. Modifications are complicated. Now, new rules require your servicer to explain why you may not have qualified for a modification but perhaps you didn't have the benefit of these disclosure requirements when you were applying for your loan modification.

So, is it possible to take your mortgage into your own hands and modify it? The answer may be yes if like many New Yorkers, you own a property which has a mixed use. The most common example of what I mean is a two or three family home which serves as both a primary residence and a rental property. Many New Yorkers bought into homes with built in rental income in the housing boom of the mid 2000s. Many of these homes have lost an incredible amount of value and are now underwater - that is, they are worth less than what the mortgage balance is.

In Chapter 13, you may be able to cram down the value of your home, even if a first mortgage is involved, if your property is more than just your primary residence. So, let's say you own a two family home that went from being worth $550,000 to $350,000 and that provides you with rental income every month. Well, you may be able to cram down the value of your home to its current value of $350,000 and pay this off over 60 payments at a reasonable interest rate. 

Suddenly, that money you were hoping to allocate to a monthly modification payment may take you even further than you ever thought possible and make you debt free in 5 years.

[Photo credit: Mortgage Rates by Mark Moz]

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How is this possible? Well, I've done it before and Bankruptcy Courts around the United States have interpreted the "anti-modification" section of the Bankruptcy Code (11 USC 1322(b)(2)) to only prevent modification of a mortgage on a property which is solely a person's principal residence and was originally intended to be that person's primary residence. The most recent example of a court taking this position is a case coming out of the Southern District of Florida. See In re Ramirez (Bankr. S.D. Fla. Apr. 4, 2014). We have this case law in New York too.

Questions or interested in a free consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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Are You Drowning in Student Loan Debt?

 by Natasha Meruelo, Esq.

Many clients who come into my office feel that there is simply nothing they can do about their student loan debt. They have been in endless forbearance or deferment agreements but these are not long term solutions to their debt. In fact, this may only increase their debt and make it more unmanageable. If they are delinquent, they have simply come to believe that there is no solution or that they can be be pursued for this debt for the rest of their lives.

Well, believe it or not, if you have federal loans (FFEL loans, direct loans, department of education loans) there are many repayment options. If you are also in a profession that would lead you to being eligible for loan forgiveness, it is imperative you enter into the right loan repayment option or you may find that after 10 years of payments, you are not eligible for loan forgiveness after all. Federal loans are serviced by a variety of different companies with Sallie Mae, Nelnet, ACS. MOEHLA, FedLoan Servicing (PHEAA) being some of the most common servicers. Regardless of who your loan servicer is, if you have a federal loan, you have options and I can help you understand what they are. 

For individuals whose trouble with their student loans is more advanced and they are in default, there are also solutions available even though the problem is more complex at this stage. It is possible for you to get out of default, to "cure" your default and obtain a reasonable payment arrangement. If you are experiencing problems repaying your federal student loans, if you have suffered wage garnishment or your tax refunds are being taken every year, I can help you get out of default and take control of your loan debt.

Finally, for individuals who feel their federal student loans are such a hardship that bankruptcy may be their only option, case law is changing and a hardship discharge may be an option depending on your circumstances. I offer free consultations and can help you determine if this is an option that may be available to you.

For a discussion on private student loans, look for a future post that will discuss settlement, defense and bankruptcy hardship discharge of your private loans- yes, it is possible!

 

[Photo credit:Lendingmemo]

Questions or interested in a free consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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Why Did My Neighbor Get a Better Loan Modification Than Me?

Why Loan Modifications are More Complicated Than You Think

 by Natasha Meruelo, Esq.

Unfortunately, obtaining a loan modification is far from a straightforward process. Putting aside the frustration of actually applying for a loan modification with banks that don't seem to care about you, the question of whether you can get a loan modification and what kind of modification you can get seems to be a mystery. It certainly doesn't help that when you call that 1-800 number for your bank, you never seem to speak to the same person twice and every person you speak with tells you a different story. Whether or not you can get a loan modification shouldn't be a mystery but because of all the variables in the process, it may as well be.

So, how do you know if you can get a loan modification? What kind of loan modification will it be? Will it be as good as the modification your neighbor got? 

First things first, don't send a lot of money to a "loan modification company" and then sit back and wait and see what happens. Educate yourself about what kind of mortgage you have, pay attention to the notices and letters you are getting from your mortgage company, keep in mind that every case is different and highly fact specific and then consult with a professional like a bankruptcy attorney.

There are three crucial pieces of information you need to have 1) who is your loan servicer- that is, who sends you your mortgage statements every month, 2) who is your investor- that is, who supposedly owns your mortgage, 3) when was your loan was taken out (when did you close on this loan).

The next most important pieces of information, in my view, are 1) what are the sources of income available to you and what is the total monthly pre-tax income that is available to you, 2) what are your annual property and school taxes, insurance costs and any HOA/Condo/Co-op Fees and 3) how much other debt do you have.

Generally and very broadly speaking, there are six kinds or categories of loan modifications.

First, there are the loan modifications for pre January 1, 2009 loans that are owned by government-sponsored enterprises (GSE) like Fannie Mae and Freddie Mac. I would also put FHA Loan Modifications into this category to keep things simple. These loans almost always tend to be primary mortgages as opposed to lines of credit or second mortgages. GSE loans are eligible to be considered for Home Affordable or "Making Home Affordable" (HAMP) loan modifications if the borrower and the loan meet certain criteria. GSE loans may also qualify for special internal modifications offered by each the GSEs. Each of these programs have their own rules which can be varied and complex.

Second, there are HAMP loan modifications (including Tier 1 and Tier 2 modifications) for non GSE enterprises like Chase, Bank of America, Wells Fargo, Citibank, Select Portfolio Servicing, Ocwen, etc. But this gets tricky because these companies do not always own the loans they send statements for every month and although they have agreed to participate in HAMP, the real owner of your loan may have restrictions in place that prevent you from getting a HAMP modification. Again, the "rules" for these modifications are complex because they are often driven by documents referred to as "Pooling and Servicing Agreements" (PSAs) and there are many different PSAs as each investor has their own, tailored to different specifications.

Third, there are private investor modifications or internal modification options offered by private owners of mortgage loans that may have restrictions that prevent you from getting a HAMP modification (or where HAMP is not an option because of the origination date, loan size or some other factor) but are willing to offer you another option that meets their own rules or restrictions.

Fourth, there are loan modifications for loans that were originated after January 1, 2009. Unfortunately, in many cases, especially GSE loans, these options are far less affordable than HAMP modifications and in my experience, this is primarily due to two reasons: 1) the interest rate offered is usually higher and based on current rates and 2) since these loans are fairly new, extending your mortgage that has 25 years left to go, to a new 30 year mortgage (for example), doesn't make that much of a difference.

Fifth, there are modifications of your second mortgage or line of credit. These are worthy of a blog post of their own but generally speaking, they either mimic your first mortgage modification or are modified pursuant to a special investor/owner modification program. Second mortgages and lines of credit tend to be non-GSE owned- it is unusual for a GSE to be the owner of these loans.

Sixth, there are loan modifications that are available as the result of litigation- e.g. the National Mortgage Settlement or other lawsuits filed by various state Attorney Generals, for example.

This is just the beginning of the loan modification discussion. There are quite a few more factors that influence what type of a loan modification you will ultimately be eligible for such as your income, the costs of your property taxes and insurance (escrow) and how delinquent you are.

So, there are no "one-fit-all" approaches to loan modifications. Just because your neighbor, friend, family member or co-worker got a certain type of loan modification and you have a similar situation does not mean you will get the same kind of modification.

This does not mean you should be discouraged. This just means that you should get as pro-active as possible and educate yourself on what kind of mortgage you have, the costs of living in your town/city, get familiar with your own pre-tax income and then seek the counsel of an experienced attorney to see what options are available to you.



Questions or interested in a free consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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Image courtesy of Jeff Turner "Sign Of The Times - Foreclosure"

What are your questions about Bankruptcy?

I meet with clients every day and answer many questions during our complimentary consultations and would like to open the floor to answer your questions as well.

Please comment on this post and let me know what you are wondering about when it comes to bankruptcy. What questions or concerns do you have?

Feel free to comment and I will do my best to answer them!


Questions or interested in a consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free of charge.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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Common Bankruptcy Questions & Answers

by Natasha Meruelo, Esq.

What is Bankruptcy? 

Bankruptcy is a legal process in which you ask the Bankruptcy Court to grant you relief from your debts. In order to obtain a discharge of your debts, you need to honest and truthful about what assets you own or may have owned but no longer own, what debts you owe, your income and expenses and what your past financial dealings have been like. There are several types of Bankruptcy. The most common types are Chapter 7, 11 and 13. Most consumers typically consider Chapter 7 or Chapter 13 Bankruptcy. But, occasionally, individuals may find it advantageous to file for Chapter 11 Bankruptcy.

What is Chapter 7?

Chapter 7 Bankruptcy is known as a “liquidation”. What this means is that in return for a discharge of your personal liability for debts such as credit cards, car loans, personal loans, retail accounts, lines of credit and mortgage loans, you give up all non exempt assets. In New York State, you have a choice of exemptions that you can apply to your assets. One of the most recent changes to New York exemption laws, for example, allows homeowners to exempt up to $150,000 ($300,000 for married couples who are both owners) of equity in their home. In many cases, an individual filing for Chapter 7 is able to keep all of the property that is important to them and able to gain a fresh start without paying any money to their creditors. If you are considering filing for Chapter 7 Bankruptcy, it is very important to speak with a qualified attorney who can assist you with exemption planning. Remember, only a lawyer can counsel you on how Bankruptcy exemptions apply to your property.

What is Chapter 13?

Chapter 13 Bankruptcy is a “reorganization” of your debts. In Chapter 13 Bankruptcy, you propose a plan on how to deal with your debts.The plan must conform to the requirements of the Bankruptcy code, which addresses 1) how certain debts are classified and paid back, 2) how much you must commit to a Chapter 13 plan, 3) what debts are not dischargeable and 4) many other aspects of your Chapter 13 case. A chapter 13 plan can last between 3-5 years. There is also a limit on the amount of debt a person can have in a Chapter 13 plan. If you exceed this debt limit, you are not eligible to file for Chapter 13 Bankruptcy.

The main difference between Chapter 7 and Chapter 13 is that in Chapter 13, you are making monthly payments towards your debt. Often, these monthly payments will be much less than the amount you would normally pay just towards credit card minimums each month. The difference is that in a Chapter 13 case, your payments actually mean something and your debt is being resolved. 

However, just because you are making monthly payments does not mean you are necessarily paying back 100% of your debt in a Chapter 13 plan. In fact, in many cases individuals pay a very small percentage of their debt back. However, there may be many circumstances in which it is in your favor to pay certain debt back in full and Chapter 13 is a way to accomplish this at a much lower cost than outside the Bankruptcy process.

I thought Chapter 11 was just for businesses. Why would I consider this option?

Chapter 11 is the only kind of Bankruptcy where a business may obtain a discharge. However, individuals may also take advantage of Chapter 11 Bankruptcy. This may be particularly useful if you wish to reorganize your debts and create a payment plan but your debts exceed the debt limits in a Chapter 13 or where you cannot propose a feasible plan to pay your debts in 5 years and need a longer repayment period.

A Chapter 11 plan is more costly than a Chapter 13 but the benefits offered by Chapter 11 Bankruptcy may significantly outweigh the costs of a Chapter 7 liquidation or not having any Bankruptcy protection at all. 

What is the difference between debt consolidation and Bankruptcy?

Often, debt consolidation companies only make your debt problems worse. Many of these companies may not have your best interests at heart. Frequently, clients have come to me after paying these companies hundreds of dollars with the same or more debt than they had when they first began that process. When you begin paying one of these companies and stop paying your bills, some creditors decide to take matters into their own hands and may file a lawsuit against you in your local court. If you are able to settle your debts, you may find yourself dealing with 1099-c tax liability for any amount of money in excess of $600.00 that was “forgiven” as a result of the settlement.  Imagine thinking you resolved one of your debts but are now smacked with an IRS tax bill that comes straight out of your refund, or worse, that is a bill you now owe to the IRS!

On the other hand, debts discharged in bankruptcy are not taxable income. While it is true that filing for bankruptcy is not great for your credit, neither is “debt consolidation”. This is because if you stop paying your bills, creditors can report to credit reporting agencies that you have done so or that you are delinquent. If a creditor agrees to accept less than what you owe them, they can also report this. All of these things can negatively affect your credit. Imagine if you could have filed for Chapter 7 bankruptcy and not paid all this money and instead focused on taking care of your family!

Debt consolidation often just delays the inevitable and costs you much more money than paying for a Bankruptcy which gives you real and immediate protection from your creditors.

Why would I file Chapter 13 over Chapter 7?

There are many advantages to filing for Chapter 13 that you may not be aware of. Here are a few examples:

1. Chapter 13 Bankruptcy can stop the foreclosure process and help you evaluate what options you have to stay in your home including reinstating your mortgage by resuming your monthly payments while paying back your arrears over 36-60 months interest free.
2. Chapter 13 Bankruptcy can allow you to strip a second mortgage which is completely unsecured due to a decrease in the value of your home.
3. Chapter 13 Bankruptcy can allow you to manage your tax debts and pay them back, often times interest free and also penalty free over time. 
4. Chapter 13 Bankruptcy can help you lower your monthly car payments by spreading the total balance due over 60 months or by allowing you to “cram down” a loan to the actual value of your car.
5. Chapter 13 Bankruptcy can help you stretch payment of your child support arrears over 36-60 months which may dramatically reduce the amount of the garnishment you are experiencing each pay period.
6. Chapter 13 Bankruptcy can help you develop a realistic repayment plan that prioritizes your most important debts and helps you regain control of your financial life.
7. Chapter 13 Bankruptcy provides for an automatic stay of collection against any “co-signors” of consumer debts, which means the person who helped you get a loan won’t suffer just because you filed for bankruptcy.

How long will my Chapter 13 case last?

A Chapter 13 case will last between 3-5 years. The length of your plan is determined by your income and how it compares to the median income of a household of your size in your state. If you are below the median income, you are entitled to file a 36 month plan. However, if you need more time to pay your debts, you may ask the court to allow you to have up to 60 months. If you are above the median income, your plan will be 60 months long.

When do I make my first payment in my Chapter 13 case?

You will begin making payments right away. The first payment is due 30 days after the filing of your Chapter 13 case.

I’ve heard different kind of debts will be treated differently in a Chapter 13 case. Is this true?

Yes. In Chapter 13 Bankruptcy, certain debts are given priority over others. Generally speaking, Chapter 13 organizes debts into the following categories: 1) administrative debts (e.g. attorneys fees, trustee fees), 2) secured debts (e.g. mortgage arrears, car payment arrears, secured tax debts), 3) unsecured priority debts (e.g. taxes, domestic support obligations) and 4) unsecured debts (e.g. credit cards, retail cards, personal loans). Administrative, secured and unsecured priority debts must be paid in full in any Chapter 13 case. They also get paid in that order. Unsecured creditors are paid last. Your Bankruptcy attorney can help you understand this further and explain to you what debts you may have, if any, that must be repaid in full.

What happens if I am no longer able to afford my Chapter 13 payments?

Often times, unexpected events occur which may prevent you from making your proposed Chapter 13 plan payments. There are several options that may be available to you if you are no longer able to afford your Chapter 13 payments. You may be able to modify plan to lower your monthly payment, convert your case to a Chapter 7 case, ask the court for a hardship discharge or dismiss your case.

I am married, does my spouse have to file Bankruptcy with me?

No, just because you are married does not mean you and your spouse have to file for Bankruptcy together. However, if you are both liable for the same debts, your filing and subsequent discharge will not insulate your spouse for joint debts and he or she will remain liable. So, it may be in both of your interests to consider filing together.

Can I keep my house or my car out of my Bankruptcy?

No, you cannot pick and choose what assets you include or don’t include in your Bankruptcy. Some assets are not part of your Bankruptcy estate by law. However, the rest of your assets and any debts associated with these must be disclosed. Believe it or not, your Bankruptcy may help you keep your home or your car. So, don’t be scared about “including” your home or car.  You should speak to a qualified attorney about your concerns and to make sure you understand the effect filing for Bankruptcy would have on your particular assets. Remember, every case is different.

Will I have to appear before a judge? How often do I have to go to court?

When you file for Chapter 7 Bankruptcy, you typically have one court date about 30 days after your case is filed. This is what is known as your meeting of creditors. Creditors rarely show up and the person you appear before is not a judge. This meeting is where you will meet the Trustee, who is an attorney that represents the interests of your creditors. If all goes well at your meeting of creditors, you will likely never have to go to court again. An exception to this, however, is if you decide to sign a reaffirmation agreement with respect to a particular debt such as a car loan. If the Court determines there may be a possibility that reaffirming this debt could be a hardship to you or your family, you will be required to appear before your Bankruptcy Judge who will ask you some questions to make sure you can afford this debt.

When you file for Chapter 13 Bankruptcy, you will typically go to two court dates. The first is the meeting of creditors described above. The second is your confirmation hearing where you will appear before a judge. At the confirmation hearing, you will find out if the Court will approve your Chapter 13 plan and your attorney will also discuss any other items that need to be addressed in order for your case to be confirmed. Once your plan is approved and confirmed, you will likely not have to show up in court again unless a problem comes up. In our district, you do not need to appear at any additional hearings unless specifically ordered by the court or unless you fall behind on your payments.

How long does it take to receive a discharge?

In a Chapter 7 case, assuming no objections to your discharge are made, you may obtain a discharge 60 days after the initial date of the meeting of creditors. 

In a Chapter 13 case, assuming you are eligible for a discharge, you may obtain a discharge after you have successfully completed your confirmed plan, which can take 3 or 5 years.

However, these answers could be different if you filed a prior Bankruptcy case. This is because there are rules on how often you may file a Chapter 7 case or Chapter 13 case, which will affect your ability to get a discharge. If you have filed a Bankruptcy case before and are contemplating filing for Bankruptcy again, make sure to tell your Bankruptcy attorney of your prior filing!

I am a small business owner and guaranteed many of my business’s debts. Will my Bankruptcy filing and discharge also discharge my business’s liability for these debts?

No. If you own your business as anything other than a sole proprietorship, you and your business are separate entities. Therefore, you filing for Bankruptcy does not relieve your business of its liability for business debts. However, your business may not be liable for debts and a review the documents you signed for loans or other debts can help determine if the business is really liable for these debts. It is worth investing in hiring an attorney to review these documents to determine who is truly liable for your debts. This can be an important part of your Bankruptcy planning. If your business is liable for these debts and you wish for your business to be granted a discharge, you should consider discussing filing a Chapter 11 Bankruptcy for the business with a Bankruptcy attorney. 

How long does a Bankruptcy filing stay on my credit report?

Credit Reporting Agencies report potentially negative information, such as missed payments and most public record items on a personal credit report for seven years. This includes Chapter 13 bankruptcies. However, an exception to this is that they may report Chapters 7, 11 and 12 bankruptcies for 10 years. 

How long will it take for me to re-build my credit after filing for Bankruptcy?

Even though a Bankruptcy will stay on your credit report for 7-10 years, it won't necessarily affect your credit score the entire time. Many people start rebuilding their credit within 1-2 years after Bankruptcy discharge. You have also options such as applying for a “secured” credit card which can help you start re-building credit right away.

Can I wipe out student loans?

Student loan debt is extremely difficult to wipe out in Bankruptcy. This is because the standards for discharging student loan debt through a “harship discharge” are particularly difficult to meet for most individuals. This process is both complex and expensive and requires a separate proceeding from your Bankruptcy filing. 

Is it true you can wipe out taxes in Bankruptcy?

Yes, some income taxes are dischargeable in Bankruptcy. It is a common misunderstanding that Bankruptcy cannot eliminate any tax liability. But, the longer you wait to deal with tax debts, the more difficult it may become to help you.

Whether or not income taxes are dischargeable depends on when they became due, when they were assessed as well as a variety of other factors. However, income taxes which are dischargeable are not automatically discharged as a result of you receiving a discharge. A separate proceeding to determine they are dischargeable is required. 

Unfortunately, Bankruptcy cannot eliminate liability for taxes such as estate and gift taxes, sales tax or fuel taxes. Special rules also apply to trust fund taxes, which are taxes related to social security and medicare. Furthermore, if your tax debts have become “secured” by the IRS or state taxing authority filing a tax lien, this may further complicate your case and affect the dischargeability of the tax debt.

If it turns out your tax debt is not dischargeable, you can still explore if Bankruptcy would be a good way to take control of your tax debts. For example, a Chapter 13 plan may provide you with a way to repay your debts in full, at a fixed payment each month and interest free. Worrying about the IRS or state levying your bank accounts can become a worry of the past!

If you are concerned about income tax debts, you should speak with a qualified Bankruptcy attorney to determine if Bankruptcy can help you discharge these debts.

Can I wipe out child support or arrears?

Domestic support obligations, such as child support, cannot be discharged in Bankruptcy. However, you may be able to lower the amount of your monthly child support garnishment by filing for Chapter 13. This is because you are allowed to repay your child support arrears over 3-5 years in Chapter 13, which may significantly reduce the amount of funds that are garnished from your paycheck.

I only owe a small amount of debt? Can I still file Bankruptcy?

Yes. There is no minimum debt requirement to be eligible to file for Bankruptcy. Although the amount of debt you owe may seem small compared to others, the decision to file Bankruptcy is somewhat personal. If debt is affecting your life negatively and you or your loved ones are suffering from the obligation to repay debt, Bankruptcy may be appropriate for you even if your debt is not very high.

Questions or interested in a consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free of charge.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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Understanding the "Unknown"- What Happens When You File For Chapter 7 Bankruptcy?

by Natasha Meruelo, Esq.

Ok, so you've decided you need to file for bankruptcy and you're hoping this decision is going to lead to you becoming debt free and able to breathe easy again. The effect of a discharge certainly sounds good. However, what happens in between beginning the process and getting to the final result of obtaining a discharge is a gray area for many people who come to see me. So, I'm going to devote this post to explaining the Chapter 7 bankruptcy process further and perhaps this will also answer some of your questions.

At my office, after a client retains me and provides me with certain documents, they must take a credit counseling course. In the mean time, I prepare a client's case and request the client come into the office to review and sign their petition and schedules before it is filed (this is a simplified version of the process which usually involves a lot more analysis and review before a case is filed). It is important to emphasize that bankruptcy relief does not begin until a case is filed. Furthermore, your case cannot be filed until you complete the credit counseling course so don't delay! 

Once your case is filed, you are entitled to protection of the "Automatic Stay". This protection basically means that creditors are not permitted to collect pre-filing debts from you by calling you or communicating with you, garnishment of your paycheck stops and freezes on your bank account are lifted, and lawsuits come to a halt. Creditors may petition the court to continue certain lawsuits, such as foreclosure actions, however they must obtain permission to lift the Automatic Stay before they can continue a lawsuit.

So, the most immediate effect you will notice when your case is filed is that phone calls and harassing creditors should stop contacting you. Get ready for those "1-800" phone calls to stop.

A lot of behind the scenes work also begins at this point. The most typical example is that your attorney will communicate with the Trustee's office and provide him or her with certain documents such as a copy of your signed petition, pay stubs, tax returns, appraisals of assets and other documents that Trustee may specifically request. Your attorney may also engage in communications with certain creditors regarding your filing.

The next step in the process that you will experience is what is known as the Meeting of Creditors or "341a Hearing". This is a hearing you must attend and typically occurs about a month after your case is filed. At this hearing, you meet the Trustee who is assigned to your case and that Trustee may ask you a wide range of questions regarding your assets, income, expenses, financial history and how your difficulties arose. What happens at your hearing depends on the complexity of your case, whether you have assets that could be distributed for the benefit of your creditors and whether the Trustee has any additional questions or requests additional information. If your hearing is "closed", you are one step closer to obtaining your discharge.

After your hearing is over, you should make sure you take the second required course, known as the Financial Management course. You cannot obtain your discharge without taking this class. There are many other events that could happen between the 341a Hearing and obtaining your discharge. For example, creditors technically have until 60 days from the date of your hearing to object to your discharge or the dischargeability of any particular debt. The Notice of Meeting of Creditors that you receive in the mail will state what date the is last day for anyone to object. 

Other events may also need to happen prior to discharge. A common example is where a debtor wishes to reaffirm a particular debt, such as a car loan. This must be done within a certain window of time since an individual cannot reaffirm a discharged debt. So, although the Trustee may have "closed" your hearing or ended further inquiry into your case, this does not mean all the work in your case is done. It is very important you discuss what additional requests or supplemental services you may want your attorney to provide you with ahead of time so that important deadlines do not pass you by. In our court, for example, if you wish to participate in the Loss Mitigation Program, you must request this before your case closes. The same goes for stripping a judgment lien. It must be done before your case is closed or you may find yourself in a difficult predicament later when the only way to try to strip a lien is to go through the expense and time of re-opening your case (which is at the court's discretion). 

Typically, a person is eligible to receive a discharge 60 days after their 341a hearing and many courts will close a case the same day or within a few days of entry of the discharge. Once your case is closed by the Court, your case is officially over.

Questions or interested in a consultation about your case? Email Natasha Meruelo, Esq. at meruelolaw@gmail.com or call me at (914) 517-7565. The first consultation is always free of charge.

Natasha Meruelo, Esq. is located at 445 Hamilton Avenue, Suite 1102, White Plains, NY 10601.

*Natasha Meruelo, Esq., designated as a Federal Debt Relief Agent by an Act of Congress and the President of the United States, proudly assists consumers seeking relief under the US Bankruptcy Code.   Prior results do not guarantee a similar outcome.

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