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Contact our Bankruptcy Lawyers at:
(408) 298-8910 San Jose Office
(831) 998-8144 Salinas Office

Wednesday, May 29, 2013


            As a bankruptcy lawyer with 19 years of experience representing debtors through the bankruptcy process, I am all too familiar with the common misgiving that everyone that goes through bankruptcy has, that is, how will their credit be affected? And, how can they get their credit back?

            Common threads that many people have who are struggling with the concept of filing bankruptcy are that their credit may already be damaged.  For these people a bankruptcy filing will likely not decrease their credit score.  The question thereafter becomes, "how will I get good credit back?" or "will the bankruptcy ruin my credit for 10 years?"

            The concept of good credit is something that we all need to be aware of, because when we have good credit, we have greater opportunities in our life to have and acquire "things" that we may want, like cars and homes on credit, or just credit cards to help us ease some of the stresses of our daily lives.  Some of us feel that good credit is beyond our reach.  But really, each one of us can have good credit.  It is not beyond the reach of any one of us if we care to work on the process.  So, if there is old debt on the credit report, the solution to the problem can be solved in one of three ways. 
            The first would be to conduct credit repair in an aggressive manner.  This can be done by writing demand letters to remove debt on the basis that it is disputed.  When pursuing this, the consumer must write letters to each of the credit bureaus (Experian, Transunion, and Equifax).  You may be able to electronically submit your credit dispute as well.  The purpose of the letter is to use the law under the FairDebt Collections Practices Act to your benefit.  I have personally seen the effectiveness of this path through friends and family.  This process can be time consuming, but is worth pursuing to raise the credit score, and remove old debt that serves to pull the credit score down.  If you don't have time to work on this yourself, firms like the Lexington Law Firm have a proven reputation for success, and for a reasonable fee, can complete all the steps in this process for you.

            The second way a person can effectively deal with debt to increase their credit score is to negotiate debt settlements with their creditors.  This process entails usually the offer of a lump sum settlement that approximates a percentage of the debt, usually 25% of the face amount owing when the offer is made.  The problem with this course is that their may be one or two creditors who will not negotiate, and who refuse to make any settlement at all.  When this occurs, this forces people to file bankruptcy, as they may not have the liquid funds to settle all the debt in lump sum payments.

            When the debt is too high to settle, or too new to be effective with credit repair, people often turn to the bankruptcy system for assistance.  The bankruptcy, when used as a financial tool, can be filed for the purpose of receiving a "clean slate" or "fresh start."  This avenue should be seriously considered when looking at the following aspects of a person's life:  age, total savings, including retirement and other savings and the present state of your credit score.  Age is considered in the context of savings and investments., because as we age we have less time to save.  The immediate future needs for the credit should also be considered.  Many people don't have significant savings and investments, and unless you are planning on buying a new home in the next two years, a bankruptcy filing will weigh positively in the balance of pros and cons.

            Once the bankruptcy is concluded, the process of credit repair should begin.  This process is different from the credit repair conducted without a bankruptcy filing.  What becomes necessary after the case is concluded is that new solicitations for credit are accepted by the consumer and properly managed.  For the major credit bureaus, it is a numbers game.  Once the bankruptcy is completed, you will not have personal liability on debt.  In order to have a good credit score, their must be a history of paying on debt.  The greater the number of accounts, and credit extended, the higher a person's credit score will be or become.   This means that once a bankruptcy case is finished, the person must apply for new credit cards to improve their credit score.  In the beginning, it may be that all the person might obtain would be "secured" credit cards.  There are companies that cater to assisting a person increase their credit score by offering these sorts of cards (see for more information about secured cards).  Although it may not seem like a good deal, these sorts of cards go on a person's credit report and assist greatly in increasing their overall scores. 

           If new credit cards are obtained, then the next step is to manage the cards well.  No late payments should be made.  Ideally, the credit cards would be paid in full at the end of each cycle.  After 24 months of charging and timely payments, a person's credit score will dramatically improve.  I know of one individual who with successful management of his credit was able to bring his credit score to the mid 700's in two short years after his bankruptcy filing. 

            Over the years of my practice, I have personally witnessed the successes of many clients who have filed bankruptcy and rebuilt their credit in a short time, and go on to becoming real estate investors or the owners of new and successful businesses.

Monday, May 20, 2013

Bankruptcy Chapters for Individuals in a Nutshell

Bankruptcy is a financial tool that you are guaranteed by the United States Constitution.  There are different bankruptcy structures for different situations.  The different structures are defined in bankruptcy law as “Chapters.”  Individuals have three bankruptcy chapters available to them:

(1)   Chapter 7
(2)   Chapter 13
(3)   Chapter 11

Chapter 7 – Liquidation

Chapter 7 bankruptcy cases are the most common chapter for individuals.  Chapter 7 is sometimes referred to as a liquidation proceeding.  The Chapter 7 Trustee (an individual appointed to oversee the Chapter 7 case) has the power to sell property if it is not protected by an exemption.  California provides two sets of exemptions that individuals can use to protect their personal and real property. 

A Chapter 7 bankruptcy case with no unexempt assets typically lasts for three months.  Some cases are open for more than three months depending on different variables, such as the Trustee may research specific asset values, among other reasons.  Once the case has run its course the Court will issue a discharge of debt, which means that the individual no longer owes money on their debts.  Some debts are not discharged, such as student loans, most taxes, and spousal support or child support arrears. 

If Trustee is selling assets then the case will stay open longer before the Court issues a discharge.  Cases can be held open for a year or longer depending on the specific facts of the case.

Chapter 13 – Reorganization

Individuals who file Chapter 13 cases receive a similar discharge as those in Chapter 7 (additional debts not discharged in a Chapter 7 case may be discharged in the Chapter 13’s superdischarge).  A common misperception about Chapter 13 cases is that individuals are required to pay their debts back.  This stems from the fact that Chapter 13 debtors are making monthly payments to the Chapter 13 Trustee.  These payments usually go to secured creditors (car lenders, mortgage arrears), or to taxes that will not be discharged and/or to pay attorneys fees.

This Chapter can help individuals who have fallen behind on their mortgage payments, who are having difficulties with their car loans, have problem tax debt, and many other situations.  The case typically lasts from three to five years.  Many will close much earlier depending on how the case was set up and the claims filed. 

Chapter 11 – Reorganization

Individuals only file Chapter 11 when they do not qualify for Chapter 7 or Chapter 13.  Chapter 11 is more burdensome in terms of the tasks required by law.  Chapter 11 cases are for secured debts exceeding $1.1 million and unsecured debts exceeding $380,000 for individuals (approximate numbers as of May 2013), or for corporations or other shell entities that need to reorganize their debt obligations.

Common Elements:

In each Chapter an individual acts as a Trustee for the bankruptcy estate (in Chapter 11 proceedings the debtor normally acts as their own trustee).  One thing the Trustee does is to ensure that the bankruptcy case is in line with the bankruptcy law.

Also, in each Chapter the individual is required to attend a hearing called Meeting of Creditors.  The Meeting of Creditors is where the Trustee asks the individual questions under oath related to their bankruptcy schedules.