By Richard K Gustafson, II

A report released by the National Association of Consumer Bankruptcy Attorneys says that the new reform legislation has failed to stop abuses and instead has thrown up obstacles to people with legitimate reasons to file for bankruptcy.

The report was based on analysis of 61,335 people who have gone to credit counseling agencies. Basically, the report showed that 97% were unable to repay any debts and 79% had gotten into financial trouble because of job loss, huge medical expenses or the death of a spouse. The report showed that the new laws were not making any measurable difference in preventing abuse, as the proponents of the legislation were hoping. Instead, the new laws have placed hurdles in the path of those who have unforeseeable financial problems.

The new credit counseling requirement was cited as an example of additional costs and time burdens placed on people who truly need bankruptcy relief and were not the intended targets of the new legislation, according to proponents. Proponents of the legislation supported it because they believed that the bankruptcy process was being abused by gamblers, compulsive shoppers, and multimillionaires who take advantage of liberal state laws that allow people to protect large residential estates.

Opponents of the legislation argued that the new laws do not address the concerns the proponents wanted to address. Instead, the new legislation simply makes it harder for low-income working people, single mothers, minorities, and the elderly to get needed relief.

This study supports those who opposed the legislation.

It seems that now, more than ever, people who need bankruptcy relief need to get knowledgeable counsel to help them negotiate the burdensome new laws and make sure their case gets done right. You should also know that despite the negative aspects of the new bankruptcy reform law, those who need relief can still file for bankruptcy. It might be harder to do now than before October 17, 2005, but it’s still not as hard as living in financial distress.

By Richard J. Waple

I am often asked questions regarding credit cards and bankruptcies. Each individual case can be different and the answers may vary depending on specific circumstances, so make sure to contact an attorney to discuss the exact nature of your situation. Below, I have listed several frequently asked questions and my typical answers;

Q: Can I eliminate my credit card debts in a Chapter 7 bankruptcy?

A: Generally, yes, the majority of credit cards are unsecured debts and can be discharged in a Chapter 7 bankruptcy, absent fraud.

Q: Can I keep any credit cards when I file bankruptcy?

A: Bankruptcy law requires full disclosure of all debts and assets. Thus, you should list all credit cards with a balance. Sometimes, it is possible to enter into a reaffirmation agreement with a credit card company, which is an agreement re-obligating you to the debt. The creditor may agree to let you continue using the credit card if the debt is reaffirmed. However, I generally don’t advise my clients to reaffirm on any unsecured debts. Most clients would agree that having as little debt as possible remaining after the bankruptcy is the ultimate goal.

Q: Can I just pay off one of my credit cards before I file bankruptcy, so I don’t have to list it?

A: Bankruptcy law prohibits preferential treatment of one creditor over another. Generally, it is best not to pay down a credit card before filing, especially if the balance is over $600.00. For the same reason, it is also not a good idea to do any balance transfers once an individual anticipates they will be filing bankruptcy. The only reasonable goal of paying a credit card off prior to filing for bankruptcy is in hopes of keeping the charging privileges on that credit card. Unfortunately, that tactic is rarely successful, see below.

Q: If one of my credit cards has a zero balance when I file bankruptcy, will I be able to keep it?

A: Not necessarily, even though the credit card issuer would not be a creditor and therefore would not be directly notified of the bankruptcy, they still know about the bankruptcy. Credit reporting agencies will report your bankruptcy filing information, so credit card issuers, who review credit reports frequently, will find out about the bankruptcy filing. Most credit card issuers will revoke your credit card even if you don’t owe a balance. I have seen some instances where the credit card issuer will let you continue normal use of the credit card, but those instances have become rarer over the years as credit card issuers get more sophisticated and information flows rapidly through the internet.

Q: Should I use all of my available credit before I file for bankruptcy?

A: No, this is a common pitfall. Incurring any debt without the intention of paying the debt back is considered fraud. A credit card company has a right to object to the bankruptcy discharge of a particular credit card if they can prove that fraud was involved. Fraud may also cause the creditor or trustee to file an objection to the discharge of all your debts, not just the credit card involved.

Q: What is the difference between an authorized user and cosigner on my credit card account?

A: An authorized user of a credit card is generally not responsible for the debts that are incurred on that credit card. The primary account holder is liable and has just given someone permission to incur debt in their name. The authorized user is not liable for any of the debts on the card, even the ones the authorized user incurred. A co-signer, on the other hand, enters into an agreement with the credit card company and is equally liable for any and all debts charged on the account. Generally, if one co-signer files for bankruptcy, the non-filing individual will be responsible for the total amount of the debt.

Q: Will I be able to get a new credit card after I file bankruptcy?

A: A major factor that most lenders consider when granting credit is an individual’s debt to income ratio. After a typical bankruptcy, either chapter 7 or chapter 13, the amount of outstanding debt is drastically reduced, making the debt to income ratio much better. In this regard, bankruptcy actually improves your ability to borrow money in the future. Creditors are also aware that an individual who files for a chapter 7 bankruptcy can not do so again for another eight years. Because of these two factors, it is relatively easy for an individual with a steady income to obtain credit cards after bankruptcy. A lot of my clients tell me that they received a large number of credit card offers shortly after receiving their discharge. The more passage of time between the discharge and the time you are applying for a new credit card and the longer you can demonstrate a good payment history (perhaps by paying on debts you kept through your bankruptcy like a car or house) the better your chances. Obviously, you have to be sure to manage these new cards wisely, but credit cards can be a good way to further re-establish credit after bankruptcy. See our friendly lender section for a list of creditors who work with people after bankruptcy.

By Richard K. Gustafson II

I want to share with you a short story about identity theft and how to combat it.

One of the clerks here at the law firm relayed a story of a friend of hers who was the victim of identity theft and asked me for advice. Her friend had been unable to get apartment leases despite a solid work history and decent income. Her friend was unable to finance vehicles without co-signors and couldn’t get an unsecured credit card. He had struggled to try to correct his credit report and had used his credit responsibly throughout his life. Understandably, he was frustrated and felt hopeless to ever resolve this situation. I told her friend to take the steps below.

STEPS TO TAKE WHEN YOU SUSPECT YOU ARE THE VICTIM OF IDENTITY THEFT:

1) Keep records! Keep all communications you receive regarding your identity theft. Make sure when you send any information via certified mail. Keep track of how much time you have to spend dealing with the issue.

2) Call the police. Report the theft and make sure you get a copy of the incident report.

3) Contact the Federal Trade Commission. You can go to their website at www.ftc.gov and fill out the identity theft affidavit. You can also call them at 1.877.IDTHEFT (1-877-438-4338).

4) Contact the Social Security Administration and report the theft, just in case the thief has, and is using, your social security number. There are disadvantages to getting a new social security number, so you may want to consider just reporting it instead of getting a new number. Consider how the thief is using your social security number before you decide what you want the social security administration to do.

5) Contact all three of the major credit bureaus and report the theft and ask them to put a fraud alert on your credit report. You can place an initial 90 day alert on your credit reports. You may also place a 7 year extension on the alert. Anyone attempting to use your credit (including you) will have to show extra picture IDs. The three major national credit bureaus are TransUnion (1-800-680-7289), Equifax (1.800.525.6285) and Experian (1.888.397.3742).

6) Freeze fraudulent accounts. Contact the credit card companies of any stolen credit cards and immediately have them issue new cards and cancel the old ones. Follow up with written requests. You may also need to close your bank account if the thief has stolen your checks.

7) Contact the Postmaster. If you suspect someone has changed your address with the post office or used the mail to commit identity theft, notify the US Postal Inspector.

Once you put these wheels in motion, the authorities will investigate and hopefully they will find and prosecute the perpetrator. If you keep all of your records and can show vendors and banks what happened, you shouldn’t be liable for fraudulent charges. Realize that financial institutions are taking financial losses perpetrated by the thief, so they will want you to verify your claims with records, so you need to be prepared to provide them the information about the theft they will need.

The story of my co-worker’s friend has a happy ending. The thief was arrested, charged and convicted of identity theft and mail fraud and other crimes. It turns out that the thief had stolen the identities of at least three people. He is currently awaiting sentencing for his crimes. The friend got his life back and is now able to obtain unsecured credit cards, finance vehicles without co-signors, and do the normal credit transactions most of us take for granted. The old Schoolhouse Rock saying, “knowledge is power,” turned out to be true!

I hope none of you ever become the victim of identity theft, but if you are I hope this blog will arm you with a little knowledge that can save you a lot of aggravation.

By Richard K Gustafson II

I recently received an email from a potential client. He was having trouble landing employment because each time he would go through an interview process, the prospective employer would run a credit report and refuse to hire him.

Some of you may think that this is a reason NOT to file for bankruptcy. However, consider the fact that this person was unable to get a job because he owed too many debts and he was delinquent. Employers didn’t want to hire him because they’re afraid they may have to process garnishments, that they will have to take calls from angry creditors asking for him, etc…

Bankruptcy, either Chapter 7 or Chapter 13, is a way to solve this problem. Employers won’t have to worry about getting nasty phone calls from creditors, they won’t have to worry about processing garnishment orders, and they know that the employee’s incentive to steal is gone, all because the bankruptcy has eliminated the person’s debt.

Also, personal bankruptcy allows the person to begin rebuilding credit. Remember, the first step to rebuilding credit is to get out of debt and bankruptcy is the step that can get you out of debt quicker and more cheaply than any other option.