A debt, once discharged through bankruptcy, is no longer owed. However, the consumer going through bankruptcy can ask that some debts, such as a car loan or other secured debt, be reaffirmed. Some debtors, wishing to maintain a relationship with a credit card issuer – such as a credit union – will also ask to reaffirm that debt.
This is done through a specific, court-approved agreement. By reaffirming, the debtor becomes legally obligated to pay all or part of an otherwise dischargeable debt.
If this is done through the court system, your subsequent good payment record on that debt will be reported to the credit bureaus and you will “get credit” for on-time payments and begin to rebuild your credit scores.
Unfortunately for some debtors, the urge to repay certain debts because of a moral obligation remains strong. Following that urge, they begin making payments on a debt that has been discharged – believing that any time they are unable to make payments it won’t matter, because they no longer legally owe the debt.
This is not the case, and there are two good reasons for not resuming payment. • Your payments will probably not be reported to the credit bureaus, so they will not help you rebuild your credit scores. • The act of making payments on a debt constitutes an informal reaffirmation of the debt – thus the obligation shifts from one of personal morality back to legal obligation.
Moral obligation is also an effective tool used by unsavory debt collection agencies to collect on debt that has been discharged in bankruptcy and/or debt that has become uncollectible through the statute of limitations. (These predators also use morality to coerce family members into paying debts for the deceased.)
This claim, however, is false. No matter what moral obligation you may have felt toward your original creditor, you have no moral obligation to a collection agency that has purchased that debt for pennies on the dollar in the hope of getting you to repay their investment many times over.
The telephone solicitors they hire are very good at what they do – and are often able to convince people, either through obligation or fear, to make a payment. This is the worst thing they could do, because it not only informally reaffirms the debt, it resets the statute of limitations.
Under the statute of limitations, a creditor is no longer allowed to sue for collection after a set period of time – typically 4 years from the last payment or your last use of credit.
That legality does not stop collection agencies from filing suit against you, failing to serve you with court papers, and gaining a judgment – even on a debt that was discharged 20 years earlier. Remember – these agencies pose as legitimate business, but actually operate as crooks.
Should this happen to you, you’ll need to contact the credit bureaus with proof that the debt was discharged in bankruptcy.
Q: My bankruptcy was discharged two years ago, I never missed any of my payments during that time on my bills, I bought a home a year ago this month and pay all of my bills on time if not early and still my credit scores have not changed from the 650s, what does it take to move these scores? I do not think a bankruptcy should keep your score low if in every other area you are doing well, that only makes people wonder why they are trying so hard to improve and it does not work! The bank felt my reasoning was good enough to give me a mortgage which I have honored and paid on time faithfully as well as all of my other bills. I bought a new car two years ago and have never missed a payment.
Can someone please explain this to me?
Thank you
Kerry
A: Hello Kerry, Its sound like you are doing everything you can to make sure your credit is in good standing. I am assuming you filed Chapter 13 bankruptcy and paid your trustee on-time. It also sounds like you have got a couple of other lines of credit reporting on your credit report in good standing. The one thing I have not heard is that you have some credit cards. When your credit score is determined, a mix of credit is part of that process. This accounts for 10% of your overall credit score. If you don’t have any credit cards, I recommend you apply for a couple. This will give you credit score a boost. This is probably the one reason for your credit score staying stagnant. Also since you have a bankruptcy history this will affect your credit score as well. This is considered a risk to the overall credit picture. Once you have a couple of credit cards this should boost your credit score. Remember a Chapter 13 Bankruptcy is on your credit report for 7 years from file date. A chapter 7 is on your credit report for 10 years from file date. These two types of derogatory credit histories will affect your overall credit score until they are gone.
When Representative Carolyn Maloney of New York introduced the Credit Cardholder’s Bill of Rights to the House of Representatives in January, she hoped for fast action. She had introduced the same bill in 2008 and it had died with no action taken. However, this year, with consumers up in arms over credit card issuers’ behavior, she hoped for better results.
The results are better – the Bill passed through the House subcommittee and was sent on to the full House Committee on financial Services.
However, one of the primary hopes riding on this bill was that once passed it would be immediately signed by the President and would go into effect 90 days later.
That didn’t happen. Perhaps in an effort to pacify the financial services industry, Subcommittee members have agreed that card issuers will have a full year to enact the reforms. That means that this Bill, if passed, will take effect at approximately the same time as Federal Regulations already set to become effective in July 2010.
Those regulations were enacted by the Federal Reserve, Office of Thrift Supervision and the National Credit Union Administrator. The purpose in presenting the Credit Cardholders’ Bill of Rights was to give the weight of law to the regulations. In a statement made earlier this year, Representative Maloney pointed out that regulations are relatively easy to alter, while Federal laws are not.
While this discussion was going on in the House of Representatives, the Senate Banking Committee passed the Credit CARD Act, which is another attempt to reign in unfair lending practices. This is now set to go to the full Senate for a vote. If passed, this Act would go into effect in 9 months, rather than the 12 months set by the House Subcommittee.
The Senate version addresses some of the same issues as the House version, such as eliminating double-cycle billing, requiring issuers to mail bills 3 weeks prior to their due dates, and prevent issuers from charging a late fee if payments were mailed 7 or more days before the due date. In addition, the Senate’s Credit CARD Act would limit aggressive marketing and irresponsible lending to young people with no means to repay the debt, restrict penalty fees, require that payments be first allocated to the balance with the highest interest rate, and eliminate: • Retroactive rate increases, and • Universal default These last two items have perhaps been the biggest culprits in plunging Americans into default on credit card bills, because they apply to debt which was incurred under other terms. When minimum payments double under these practices, many consumers who were never in default before are simply unable to keep up.
You’ve seen the news – car dealers and manufacturers are worried about flagging car sales. They want to move those cars off the lots, but the economic crisis is making it harder and harder for consumers to buy.
Between the number of people who can no longer afford to buy and the number whose credit scores have plummeted due to credit card issuers recent activities, the pool of car buyers has been shrinking daily.
In fact, according to figures from Autodata, March 2009 vehicle sales were 37% less than sales in March 2008.
As a reaction to this trend, GMAC Financial Services has decided to set aside billions of dollars for consumer car loans, and is lowering credit standards. This is a reversal of last year’s decision to protect itself from risk by raising credit score requirements.
By late 2008, GMAC’s minimum credit score requirement had gone to 700. Then, when the government injected $6 billion into the company, it reduced the score requirement to 621.
Now, in an effort to qualify more buyers, GMAC announced that it would once again be lending to sub-prime borrowers – those with scores below 620.
GMAC hopes to lend $5 billion during April and May – a time frame that coincides with the period President Obama set for GM to come up with a new plan to ensure its survival.
Meanwhile, car dealers are offering lowered prices and lowered interest rates on new cars – especially those models that have proven less popular with consumers.
Will this move cause consumers to rush to car lots? Some, no doubt. But the overall trend across America has been one of belt-tightening. Consumers may be more inclined to wait, or to purchase a used car rather than pay the high price for a new model.
Parts outlets and mechanic shops are already reporting an increase in business as dollar-wise citizens move toward a “fix what you already own” mentality. Buying on credit has lost much of its appeal for consumers who now face rising interest rates on goods and services they bought last year or the year before. In fact, with minimum payments rising along with interest rates, some consumers are hard pressed to keep up with the debt they already have – without adding a new car payment.
As one consumer stated recently: “If I can’t pay for it outright, I don’t need it.”
Do your children have good financial habits? Have they learned to save for things they want, or even save for the future?
The American Banker’s Association would like to help them learn those habits.
Every year since 1997, the ABA has set aside one day in April as Teach Children to Save Day. On this day, and other days in April and May, bankers visit classrooms to teach children how, why, and where to save. This year the official date is April 21.
Each year more bankers take part and more children are exposed to this fundamental step in money management. To date, more than 60,000 bankers have reached approximately 2.8 million young people. In 2008, 540,000 children were reached.
Ambitious as that was, this year the ABA has issued a Million Child Challenge – and will attempt to bring this message to one million children in one season of teaching. With 200,000 bankers working in the U.S., only 10% would need to reach 50 children each. In that light, the goal seems attainable.
We all have heard about the issues with Identity Theft and the possible personal threat. There are all types of avenues for these thieves to get your personal information. I wanted to write about checking account theft, because it has happened to me recently again. I have had this checking account fraud happen to me twice over the last 5 years. I thought I was very careful, but evidently I was not careful enough. Here is how it happens.
Stealing your checks- The thieves have to get your account number before they can do anything. Typically they can get it via your mail box, or personal checks you have wrote to a business or individual. The recent event that took place with me was a check I wrote to my kid’s private school. This check I wrote disappeared and was nowhere to be found. We are not sure who stole the check, but we know the school was the source.
Check Fraud – Here is what the thieves do once they get your checking account number. They create new checks under an assumed name and transpose your account number on these checks. In some cases they will write the phony checks to a bogus business account. Once all of this comes out in the open you will discover that all of these assumed names lead to nowhere. This is how thieves operate. They create fraudulent checking account names and bogus company checking accounts.
Money Lost – Once this has happened to you and money has been withdrawn from your checking account, don’t worry. You will get your money back from the bank. This type of activity is insured with your bank. Yes, it’s a violation of your money, but you will get every cent back.
How to Avoid – To avoid this from happening to you, I would recommend not writing personal checks from your check book. I recommend writing all bills on-line. Here ways to avoid what was mentioned. • Pay all bills on-line with your bank • Make sure you computer virus software is updated • Run malware software with Microsoft to avoid hackers on your computer. This software with Microsoft is free. Go here.
I hope this helps you avoid what has happened to me twice. I don’t care who it is, I pay them on-line now through my bank.
Yes, your spouse is the one who used the credit cards. Yes, your spouse got the house in the divorce. Yes, you each kept your own cars and you’ve both been making the payments.
His / her finances have nothing to do with you and haven’t for a long time. Right?
Wrong. Not unless your divorce included closing all your joint accounts and opening new ones in your individual names. Just because your divorce decree said that one spouse was responsible for this debt and the other spouse responsible for that one, as far as your creditors are concerned you’re both responsible.
Why? Because they can. If you both signed the application forms for credit cards, you’re both on the contract and you’re both liable.
Therefore, if your spouse has suddenly stopped making those payments, the black mark will show up on your credit report, and the creditors will come looking for you to make the payments.
To be removed from a joint account, you need to cancel the account. Not a good thing for your credit scores, but necessary if you really want to sever that tie. I suggest doing it immediately after a divorce rather than waiting until there’s a problem. Remember, you’re liable for all charges on the account as long as you remain a joint account holder.
You say you didn’t sign the application – your spouse had that credit card when you married and you were just added as an authorized user after the marriage. In that case, you won’t be liable for the debt, but the default will still show up on your credit card.
For several years FICO stopped factoring authorized user status into credit scores. Since becoming an authorized user on an account was helping people raise their scores, some crafty entrepreneurs began selling such use. When FICO realized what was happening, they put a halt to it.
But now they believe they’ve figured out how to filter out any bogus users and they once again factor it in. That’s wonderful if you’re a youth trying to piggyback your parent’s good credit to build your own – not so wonderful if your X-spouse is not paying his or her bills.
The owner of the account can contact the credit card issuer and ask to have an X-spouse removed as an authorized user. If he or she refuses, you can file a “not mine” dispute with the credit bureaus. Remember that it will take them at least 30 days to act, so if you need to do this, get started.
Then there’s your home mortgage. As with credit cards, the mortgage holder is not going to let you off the hook just because it was awarded to your spouse in the divorce decree and you haven’t lived there for 6 years. They won’t even care if you’re not on title – as long as you’re on the contract.
Some believe that signing a quit claim deed to the spouse absolves them of responsibility – but it just isn’t so. If your spouse lets that house go into foreclosure, your credit score will be equally harmed.
If you’re divorced, play it safe. Order your free credit report today and find out if your X-spouse’s activities are still being reported on your credit file. Do it now, before you need credit and find that “you” are not a good credit risk.
Stereotyping is not nice. We all know that, but there’s a reason why a “slick dealer” is often referred to as a “used car salesman.”
Part of that reason has to do with misrepresenting cars, but another part of it has to do with financing. They have enough ways to juggle the price of the car, the price of your trade-in, and the associated fees to keep anyone’s head spinning.
Of course, they’ll say all their number jugging is in your best interests – perhaps to make it appear that you have a larger down payment – or that you even have a down payment. Often, they’ll tell you the car you’re trading in isn’t worth any more than you owe, but they can pretend it is…
So pre-arm yourself before you step foot on a car lot. The first thing you should do is order a copy of your credit report and look at the scores. If you don’t know your own scores, the dealership can tell you anything – and some of them will. Then they’ll quote you a higher interest rate based on your “low credit scores.”
If your scores really are low and you can see some ways to bring them up – do it before you go shopping.
Next, don’t let anyone check your credit report until you’re actually ready to buy. Checking 2 or 3 lots over the course of a few days will only count as one inquiry, but if you shop now and then wait 6 weeks to buy, your earlier shopping will have harmed your credit score.
Now for the questions you must ask:
• What is the actual cost of the vehicle?
• How much am I financing after I pay $X down?
• What is the true APR on that financing?
• What is the total number of payments?
• What is the exact amount of each payment?
• And that adds up to … how many dollars in finance charges?
• Are there any fees you haven’t yet disclosed?
• Are you requiring credit insurance? If so, what does it cost?
• When I drive off your lot, is this purchase finalized?
That last question seems odd, but it’s an important one, because it can catch you unawares.
Many car dealers engage in a version of “bait and switch.” They send a new owner home with a car and a loan. Then in a day or two they call and say they’re terribly sorry, but the lender refused to make the loan. …But don’t worry, they’ve found someone else who will. Of course, the rate and the payment are a bit higher, but…
Don’t go for this. Unless you see documents that spell out every one of the terms of your loan, and unless you feel confident in an assurance that this is the FINAL deal, don’t take the car off the lot. Make sure you know who the lender is, and that you see their approval – in writing.
This “bait and switch” tactic is known as the “puppy dog close.” The dealer knew that you wouldn’t agree to pay a high interest rate right off the bat, so he didn’t even try. Instead he sent the “puppy” home with you for a couple of days – just long enough that you wouldn’t want to part with it and would go along with the rate and terms he intended to give you in the first place.
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Do you remember life before mortgage brokers? If you needed a loan, you went to “your” bank and sat down with the loan officer. Often, you had to have an account with that bank or they wouldn’t even talk to you.
After you explained your needs the bank would decide whether or not you could buy that house, or car, or get the money you needed for some other purpose. If they turned you down you could go talk to some other bank and hope for a different answer. If they said yes, then you took the loan program they offered or didn’t get a loan.
Then came mortgage brokers. They had access to loans from a wide variety of banks, and those banks had different programs for different kinds of borrowers. Some, such as the sub-prime loans, were ill-advised, but the banks offered them and your local mortgage broker could help you get in.
Now the trend is reversing, and many mortgage brokers believe they will soon be out of business.
JPMorgan Chase and Citi recently announced they will no longer accept loan applications submitted through brokers. If you want to do business with them, you have to go sit down with one of the bank’s loan officers. If there are none near you, you can make application over the phone or on line.
One reason banks say they are making this move is to “better serve the consumer” by putting them in the right loans. They’re trying to blame brokers for the loan programs the banks themselves promoted and the “bad loans” that their underwriters approved.
Some banks, such as Wells Fargo, still believe in working with brokers, but they may be a dying breed.
This trend is, of course, a loss for consumers. Brokers were able to “shop their loan” among a variety of banks and find the program best suited to the individual consumer. If necessary, they could switch the loan from one bank to another, saving the consumer from re-submitting loan applications at a variety of banks.
They are also more accessible to consumers. Banks close on time and are rarely open on week-ends. Mortgage brokers make themselves available to their customers during week-end and evening hours.
Mortgage brokers are also more responsive to providing the hand-holding that some consumers need. Activities such as alleviating fears, helping find lost documents, and explaining procedures are all part of a days work for a mortgage broker. It isn’t likely that bank loan officers will offer the same kind of personal service.
Along with a loss in service, some in the industry believe that the elimination of mortgage brokers is a first step in the direction of higher loan fees due to lack of competition. Most working consumers simply don’t have the time to visit every bank – either in person or on line – to make application, compare rates and fees, and make a decision.
This is a great question. Where did all the money go that was being pumped into our economy from 2002 to 2006? It seems like all the money globally disappeared overnight. The truth to the matter is there was never any money. Everything that was being bought and sold was on credit.
The banks, credit card companies, car dealerships, and other creditors were extending credit to everyone. These creditors also were lowering there credit standards. There is a reason why the current credit scoring process is in place. The FICO score model is calculated risk software that determines the likelihood of a borrower paying back a creditor. Evidently the creditors were ignoring this risk based software.
I am sure you can remember all the 0% interest rate loans on furniture, electronics, cars etc……… Some of these advertisers also sold you that there would be no payments for 3 years. This type of activity made no financial since, since people with high risk scenarios were being granted loans they could not afford.
With lending “its back to the basics”, if you cannot afford the loan, you don’t buy. I strongly disagree with getting furniture and electronics on 0% interest cards. My thoughts on this are what if you loose your job. How are you going to pay all of this off?
Now you are stuck with 0% interest loans that you cannot pay back.
This is what happened during the last 2 years. All of these loans started failing because of a recession and families over extending themselves. Is a Depression lurking around the corner? Unemployment during the “Great Depression was up to 25%. Now don’t get too alarmed yet, currently the unemployment rate is 8.5%. This unemployment rate is expected to go up to 10% by the end of the year.
There are signs of improvement in the market because of companies trimming the fat. Current economists claim we have hit rock bottom and are seeing signs of a recovery.
Needless to say, we as Americans are going to find ourselves in a different lending market. The requirements are going to be stringent. We are going to be required to have better credit scores and more savings to get loans.
Bottom line; don’t buy stuff on credit that you cannot afford to pay back the next month. If hard times fall in your lap, you might find a collection company calling you at work, at home and even on your cell phone.
Lets be smart for now on, and only purchase stuff we need…..
Disclaimer: This information has been compiled and provided by CreditScoreQuick.com as an informational service to the public. While our goal is to provide information that will help consumers to manage their credit and debt, this information should not be considered legal advice. Such advice must be specific to the various circumstances of each person's situation, and the general information provided on these pages should not be used as a substitute for the advice of competent legal counsel.
