By Richard J. Waple

The nation’s three major consumer credit bureaus - Equifax, Experian and TransUnion, - announced that they have created a new scoring system in an attempt to simplify the loan process. The new scoring system, called “VantageScore”, will be coming out later this year. In the past, each bureau used a unique formula to determine an individual’s credit score. This often resulted in a wide range of scores and has complicated the lending process. With the new scoring system, a single methodology will be used by all three bureaus, which should result in substantially similar scores from all three bureaus and simplify the loan process.

VantageScore will compete with FICO scores, which are used in approximately 75 percent of all mortgage applications. VantageScore will be based on a different scale than the FICO scores, and a major concern is that VantageScore is only going to confuse consumers, who are finally getting used to the scale of the FICO score. In an attempt to simplify the new scale, VantageScore will grade each score from an A-F, with an A representing excellent credit and an F signifying a major credit risk.

Critics point out that the new scoring system does nothing to address the major problem with the credit bureaus; inaccuracy of the data on each report. As a bankruptcy attorney, I regularly get calls from past clients who pull their credit report and realize that their bankruptcy filing is not accurately reported. It’s a relatively straight forward procedure to fix, see our article on correcting your credit, but can be time consuming to complete the process. Often, time is of the essence in a loan transaction, so I recommend that every individual who files for bankruptcy pull their credit reports before they apply for a loan, to make sure all the creditors are correctly listed as eliminated in bankruptcy. The bankruptcy court mails the creditors notice of the bankruptcy and it is their responsibility to update the credit bureaus with the bankruptcy information. I can only presume that this is a low priority for them, because it is not frequently updated.

I’m hoping VantageScore will help consumers better understand their credit, and I think that the grading system is a step in the right direction, but I would like to see more reform to ensure the underlying data on these reports are accurate. Only time will tell if the VantageScore system is adopted by major lenders and takes the place of the FICO score as the most frequently used credit score.

By Richard K Gustafson

I’ve heard reports that some credit card company collectors are telling people that they can’t file for bankruptcy on their credit cards anymore. That statement is a lie!

Bankruptcy is alive and well! Most studies have shown that 80-90% of people who look into bankruptcy could still qualify for chapter 7 bankruptcy relief without having to worry about their income level. Of the 10-20% of people who may earn more than the state’s median, my personal experience shows that the majority of them will also qualify for chapter 7 relief. Even for those who are “forced” into chapter 13 bankruptcy, bankruptcy still provides powerful and significant relief from creditors! In some cases, it provides even more relief than chapter 7.

It is true that credit cards debt incurred through fraud or used fraudulently may be protected from the bankruptcy discharge, but the burden of proving fraud is the creditor’s. Fraud was an argument that could have prevented discharge in chapter 7 even under the old law. It is true that fraud, under the new law, could also prevent the discharge of credit card debt under chapter 13, but this is not the same thing as the blanket statement that bankruptcy can’t discharge credit card debt anymore. That general statement is untrue. This is just another example of credit card companies attempting to prey on consumers. Don’t let them succeed! If you are having financial difficulties, don’t give up! Seek knowledgeable legal counsel for advice about your situation. Bankruptcy could still provide you significant relief and be the best choice you have ever made in your life.

By Richard K. Gustafson II

If you are facing foreclosure, you’re not alone! There are many reports across the country that discuss rising foreclosure rates. RealtyTrac, the leading online marketplace for foreclosed properties, reported a 13% increase nationwide in December 2005 and increased in every quarter in 2005.

The national foreclosure rate increased 27% in January, 2006
from December, 2005 and compared to January of 2005 the rate has since increased 45%! Historically, according to a 2003 report published by The Federal Reserve Bank of New York - Buffalo Branch, “the percentage of home loans in foreclosure has generally risen over the past twenty years.” According to Foreclosure.com, an online foreclosure listing service, foreclosure rates rose in 47 states in March, 2005.

Many economists and experts blame the “national lending explosion” for the increase. Other sources identify a trend over the last twenty years for higher loan-to-value (LTV) ratios.

The Federal Reserve of New York - Buffalo Branch’s 2003 study blames poor loan-to-value ratios (LTV). LTV ratios have been increasing nationwide over the last twenty years. Loans with low or no down payments and other high-LTV loans (like second mortgages that loan up to 100% of the value of the house) have increased over the last decade. Studies have suggested that higher LTV ratios lead to increased foreclosures.

Julie L. Williams, a US comptroller of the currency whose agency regulates banks said “we are clearly seeing a spike in foreclosures in a number of our major urban areas.”

Whatever the cause of the problem, the fact is that if you find yourself behind on your mortgage payments, you are not alone. But, there is good news! Chapter 13 can be a solution to the foreclosure problem. By restructuring all of your debt into one lower monthly payment, you can make it easier to afford your mortgage payments. Chapter 13 can also stop foreclosure and allow you to get caught up on your mortgage. Some aspects of the new bankruptcy reform legislation make Chapter 13 an even more attractive solution.

One of the biggest myths surrounding bankruptcy is that you will lose your house if you file for bankruptcy.

I recently met with an elderly couple who had a significant amount of unsecured debt and had struggled financially for many years, just paying the minimums on their credit card payments. All those years of payments and the principal balance had barely decreased. They had never contacted a bankruptcy attorney before because they were under the impression that they would lose their house.

How to keep your house

Each state has a homestead exemption that protects a certain amount of equity in your residence from both the bankruptcy court and other creditors. The amount of equity you have in your home is calculated by subtracting the mortgages and other liens on the house from the current fair market value of the home. A bankruptcy attorney will help to determine whether the applicable exemptions can protect the equity in your property and will take the cost of selling the property into account when calculating the equity that is protected. If the equity is all exempt, you can generally keep the house, as long as you are current on all real estate taxes, utilities, and the mortgage(s) payments. Of course, you must continue making your monthly mortgage payments to avoid a foreclosure in the future.

Each state has an exemption that determines how much equity is protected. The amount of the homestead exemption can vary greatly from state to state. For example, an individual in Ohio can only protect $5,000.00 in equity. On the other hand, an individual in Wisconsin may be able to protect up to $40,000 in equity. Some state exemptions protect up to $150,000 in equity! Click on the below link to find out more about the exemptions in your state:

Legal Helpers State Exemptions

Fortunately, there are other options available for somebody who hopes to keep their house but has too much equity to file a Chapter 7. For example, a Chapter 13 Bankruptcy is not a liquidation bankruptcy, and you can keep your house and file bankruptcy, even if the exemption is not great enough to protect all of the equity in your house. With a Chapter 13 plan, you must have sufficient income to enter into the consolidation bankruptcy and present schedules to the court showing a feasible repayment plan that would pay back at least what the creditors would have received if your assets were liquidated in a Chapter 7. You should consult with a bankruptcy attorney who can calculate an estimated monthly trustee payment for you.

Fortunately for the elderly couple, they were able to discharge all of their unsecured debts in a Chapter 7, giving them approximately $400.00 less in monthly expenses, which made it much more comfortable for them to continue making the monthly mortgage payments on their residence, which they were happily able to keep.