A bankruptcy filing is a black mark on your credit history. This can make it difficult to obtain loans, mortgages, and credit cards. Both a Chapter 7 and a Chapter 13 bankruptcy will appear on your credit report for 10 years. During this time, you may be subject to several financial hardships:

 

 

1. Secured loans may be more expensive to acquire. Only a handful of lenders may approve you for mortgage and car loans. Acquiring a loan or mortgage may require an initial down payment of as much as 50%, and you may need to accept interest rates significantly higher than those offered to people with clean credit histories.
2. Unsecured loans may be impossible to acquire. Credit card companies typically reject applicants with bankruptcies on their credit histories. You may only be able to obtain a secured credit card, which requires a security deposit typically equal to the amount of credit initially granted. Fees for these cards are generally higher than for unsecured cards, and issuers may charge an application fee.
3. Not all retirement account assets are protected. Qualified retirement accounts, such as 401ks, are protected in all bankruptcy filings. And, up to $1 million in an individual retirement account is protected. Federal law requires that only those assets needed to support a filer and dependents are exempted, so you may only be able to keep a portion of an IRA account.
4. New legislation makes filing for bankruptcy more difficult. The Bankruptcy Reform Act of 2005 prohibits some people from filing for Chapter 7 bankruptcy; adds to the list of debts that people cannot get rid of in bankruptcy; makes it harder for people to come up with manageable repayment plans; and limits the protection from collection agencies for those who file for bankruptcy. In addition, anyone filing for Chapter 7 or Chapter 13 must undergo credit counseling at their expense six months prior to filing for bankruptcy and will also be required to take a financial-management course after filing.

Any individual contemplating bankruptcy due to unmanageable debt problems should seriously consider alternatives before moving forward with a Chapter 7 or Chapter 13 filing. With many qualified debt settlement  professionals available to help individuals settle their outstanding debt, many people find that there may be legitimate alternatives to bankruptcy with potentially fewer long-term repercussions.

 

This article is for informational and educational purposes only.  It is not intended to provide legal, tax or financial analysis.  Please consult your attorney, accountant or tax advisor if you have legal, financial planning, or tax related questions.

Excellent article this morning in the Washington Post about how the credit card companies’ practices are driving down credit scores for many people.

 

Credit Score Shell Game

As High Scores Vanish, Borrowers’ Luck Runs Out

 

Read the full article here.

 

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We have often provided tips and insights into how to better manage and rebuild your credit file – something that we all should take a bona fide interest in. Since seeing is believing, we felt compelled to provide some examples of how your credit score could actually affect you.

By examining the charts below, you can see that even relatively small shifts in your credit score can make a big difference in the rates you pay. And, what seems like a small difference in monthly payments can add up over time.

To put these savings into perspective, let’s say you invested $100 per month of money saved into a simple mutual fund that earned on average 10 percent per year. Well, after 40 years, your savings would be valued at somewhere around $559,500. You get the idea.

Mortgages
Figures reflect national average rates for a $165,000, 30-year fixed mortgage.
Credit	Interest	Monthly	Savings earned
score	rate	Payment	if score was higher*
760-850	6.27%	$1,019	0
700-759	6.50%	$1,042	$8,627
660-699	6.78%	$1,073	$19,788
620-659	7.59%	$1,164	$52,336
580-619	8.91%	$1,316	$107,234
500-579	9.90%	$1,436	$150,192
Auto loans
Figures reflect national average rates for a $22,000, 36-month auto loan.
Credit	Interest	Monthly	Savings earned
score	rate	Payment	if score was higher*
720-850	7.13%	$681	0
690-719	7.97%	$689	$307
660-689	9.44%	$704	$847
620-659	10.97%	$720	$1,414
590-619	14.36%	$756	$2,705
500-589	14.90%	$762	$2,912
* The amount one could save over the life of the loan if your credit score was 720 or higher.
Rates as of June 12, 2007, from myFICO.

So remember, be diligent in keeping your credit score healthy – now and well into the future – because as you can see, credit scores really do matter.

Have you ever had the unpleasant – but increasingly common experience of finding that your credit card provider has boosted your annual percentage rate (APR) without warning or explanation? Do you suspect that the grace period for making payments has been steadily shrinking? Does it seem as though the bank is applying your payments in such a way as to maximize interest charges? In other words, do you have the helpless feeling that you’re being taken for a financial ride?

Good news! Some welcome relief is in the works, courtesy of the U.S. government.

At the beginning of May, the Federal Reserve Board proposed a set of new regulations that would help to protect consumers against the aforementioned practices and a number of others considered to be unfair. These rules, proposed for public comment under the Federal Trade Commission Act, are a follow-up to the board’s 2007 proposal for improving credit card disclosures under the Truth in Lending Act.

The proposal includes five major protections for credit card users. (Note that although we’ll use the term “bank” throughout, these rules would also apply to other institutions such as savings associations and federally chartered credit unions.)

1. Rates on Preexisting Balances — Banks would be prohibited from increasing the APR on a preexisting balance (except under certain limited circumstances), and would have to permit the consumer to pay off that balance over a reasonable period of time.
2. Above-Minimum Payments — Banks would not be permitted to apply payments over the minimum in a way that maximizes interest charges.
3. Discounted Promotional Rates — Banks would be required to extend the full benefit of discounted promotional rates by (1) applying payments over the minimum to any higher-rate balances; and (2) offering a grace period for purchases for which the consumer is otherwise eligible.
4. “Two-Cycle” Billing — Banks would be prohibited from assessing interest charges using the “two-cycle” method, which calculates interest on balances on days in billing cycles preceding the most recent one. (In effect, the cardholder gets hit with a double whammy because interest is charged retroactively to the date of purchase—even if it’s the month before.)
5. Reasonable Payment Time — Banks would have to give consumers a reasonable amount of time to make payments.

Also included are regulations affecting payment of deposit account overdrafts, whether they’re created by a check, an ATM withdrawal, a debit card purchase, or some other type of transaction. Financial institutions would be required to provide consumers with notice and an opportunity to opt out of overdraft payments.

According to a Federal Reserve Board member, these and other proposed rules “would provide the benefits of substantial protection against practices that can harm consumers.” At a time when consumers are under relentless financial pressure on so many fronts, it’s reassuring to know that someone is watching our backs.

Anyone who ever tasted sour milk understands the need for expiration dates…it only takes one “encounter” to turn you into the most vigilant “date checker.” And while it makes sense that your groceries should have an expiration date, why does a credit/debit card “expire?”

Read more

Unfortunately, there are some people in this world who are skilled in the art of fraud. Their modus operandi is to obtain credit in your name, make costly purchases, then charge your account. And when your next credit card invoice arrives, you’ll be in for a very unpleasant surprise.

Fortunately, there are ways you can fight back and avoid credit fraud:

Fraud Alerts

If a fraudster tries to get credit in your name, he or she can be stymied if you’ve added a fraud alert to your credit report. The creditor, in checking your credit, will find a statement that says something like, “I may be a victim of fraud. Call me at [your phone number] before extending credit.”

There are two kinds of fraud alerts, both free:

90-Day Alert: Maybe you suspect, but aren’t sure, that you might have been the victim of an identity (ID) theft. Ask one of the three major credit bureaus to contact you whenever you apply, or someone claiming to be you applies, for a credit purchase within 90 days.

The credit bureaus are:

Equifax: Phone 1 (800) 685-1111. Web: www.equifax.com

Experian: Phone 1 (800) 888-397-3742. Web: www.experian.com

Trans-Union: Phone 1 (800) 888-4213. Web: www.transunion.com

7-Year Alert: You should also consider this other, less common alert – which remains active for seven years – when you must prove to the credit bureaus that you’ve definitely been a victim of ID theft. With this alert, you will be asked to provide documentation from your credit card companies or other financial institutions.

Credit Freeze

A credit freeze (also called a fraud freeze or security freeze) offers more protection than a fraud alert. Once it goes into effect, potential creditors or insurance companies can’t access your credit information until you give permission to unfreeze it. Should they contact you to request an unfreeze, you’ll know if someone is trying to steal your identity.

This service is available in all fifty states and Puerto Rico. If you’ve been an ID theft victim, you can list your account without charge in most states; if you haven’t, the credit bureau will assess a small charge to set up the freeze and then unfreeze it later. For more information, visit www.consumersunion.org.

Fraud alerts and credit freezes can’t guarantee total protection, because some creditors unwisely issue credit without checking a credit report. But most financial institutions routinely use credit checking to protect themselves. And by protecting themselves, they’re protecting you.