I really have been working hard at not filing bankrupcy but I may not have a choice anymore. My question is, ‘are credit cards with a zero balance included in the bankrupcy’? Will the courts let you keep those?

Ms. Maria Ferrantelli

Answer – The simple answer is yes. Folks who file for bankruptcy often leave things like cell phones out of it (since they still need and want to use a cell phone).

But having said that, if you are filing for bankruptcy, presumably you would like to eliminate your debt burden. So I do not see the reason not to include it unless you want to continue to use this card and you do not really have a lot of balance on it.

But once you have filed, there is no certainty that the issuer will continue their relationship with you (meaning to say there is always a possibility that they may close the account with you).

However, always consult your bankruptcy attorney from your state with regards to these matters.

Hi,
I have a credit card which I’ve had for years. When my daughter, at age 17, went to college, I got her a card for emergencies. She didn’t sign for it and we didn’t ask for joint account. She used it a few times but since had paid it off. I went through a financial struggle and used the card myself to the limit and now am in BK13. They shifted the debt to her, changed the name on the account and sent it to collections. It now shows on her credit report and we have never given them her SSN. I don’t understand? Can this be?

Mr Donald Harless Jr

Answer – Donald, though you think it is a joint account, it may well be that your daughter is just an authorized user. But I’ll try to explain the consequences of your situation.

If she is just an authorized user

How to find out if she is just an authorized user or a joint account holder with you?

I suggest you ask your daughter to get a copy of her three credit reports (from Experian, Equifax and TransUnion) and thoroughly comb through them. If she is just an authorized user, it will show up as an “A”. If it is a joint account, then it will show up as “J”.

If she is an authorized user, then this are your action steps

Using Validation against collection agencies – If your daughter ever answer a call from the collection agencies, simply ask for a name and an address and then HANG UP. Write to them requesting a validation of the debt. Many times, they are unable to validate it and they will magically disappear! Send all correspondence using “certified mail” and keep all records.

(having said that, if you are in the middle of filing for chapter 13, you will be on “automatic stay” which means your creditors are not allowed to contact you)

But what if she is indeed a joint account holder

Since you are filing under chapter 13, by definition, you and your attorney will have to present a payment plan to your creditors. You will have to present a plan to the judge and you will also have what is called a 341 meeting with your creditors. This is when your attorneys should all these sorted out.

I do not know how long you are in the process of your chapter 13 filing, but depending on your state laws, it may or may not be too late to remove your daughter as a joint account holder. And since the account has been sold to a collection agency, it may probably be too late.

But if your daughter is indeed a joint account holder, then your bankruptcy attorney should know about this and have all this sorted because the debt will not be wiped out and you will have to negotiate your payment plan. In this case, you best bet is to consult your BK attorney.

To sum up – There is a higher chance of removing the credit item from your daughter’s credit report if she is an authorized user. But if she is a joint account holder, that is a different story. Her credit report will take a big hit. Best to consult your BK attorney.

]]> http://www.askmrcreditcard.com/creditcardblog/what-happens-to-joint-accounts-or-authorized-users-when-main-card-holder-files-for-bankruptcy/feed/ 1 http://www.askmrcreditcard.com/creditcardblog/can-i-keep-my-home-and-how-much-credit-card-debt-is-discharged-in-bankruptcy/ http://www.askmrcreditcard.com/creditcardblog/can-i-keep-my-home-and-how-much-credit-card-debt-is-discharged-in-bankruptcy/#comments Wed, 24 Jun 2009 11:20:55 +0000 Mr Credit Card http://www.askmrcreditcard.com/creditcardblog/?p=6912 Here’s a question from a reader:

My husband and I are going through some hard times paying our bills. We, recently, had a baby and between credit card payments and medical bills it is getting harder to pay them. I would like to know is that if We file for bankruptcy We need to surrender our home and vehicles as part of the bankruptcy ?and how much of our credit card debt We are supposed to pay back?. I’ll appreciate if you answer my questions. Thank you.

Mrs Annett Jones

Answer – Annett, the answer to that question depends on whether or not you file for a chapter 7 or chapter 13 bankruptcy. Even then, it depends on your state laws and your individual circumstances. But first, a very quick explanation of a chapter 7 and 13 bankruptcy.

Chapter 7 : – A chapter 7 bankruptcy plan simply means that you do not intend to pay back your debts. Hence, all non exempt assets will be sold to pay back your creditors. You can keep exempt items, which includes the following:

Can you keep your home in a chapter 7 bankruptcy? – The answer is not clear bcut. It depends on your state laws. So it is best to consult a BK attorney. It may also depend on whether you are behind your mortgage. If you are, then technically you can still be foreclosed. And it can also depend on the equity you have on your home. If the equity in your home (less certain non exempt items) is negative, you may be allowed to keep your home. Once again, it is best to consult an attorney.

How about credit card debt in a chapter 7 bankruptcy? – Your credit card debt and your medical bills will be wiped out. Any non-exempt items will be used to pay your unsecured creditors.

Chapter 13 bankruptcy – Unlike a chapter 7 bankruptcy, a chapter 13 bankruptcy requires an agreed payment plan such that you can continue to service your existing debt. This is likely to apply to folks who have a regular income and fail the means test to qualify for a chapter 7 bankruptcy. Hence, going through a chapter 13 bankruptcy involves setting a debt repayment plan with your creditors.

You are expected to come up with a plan that pays back within 3 to 5 years and under favorable terms. That means that you will still have your credit card debt (though any late fees and interest rates will be freezed) and you can keep your home. Hence, if keeping your home is very important, then chapter 13 would be the safer route.

Once you meet with a lawyer to file for bankruptcy you are granted an “automatic stay”. What this means is that your creditors have to stop calling you and if they do, just provide them with your filing information or refer them to your attorney. Your attorney will help you work out a repayment plan and get the courts to approve it.

You will also be expected to attend a “341″ meeting – which is just a meeting with your creditors. After that, you will also have to attend one more court session. You must then make your payments as agreed under your chapter 13 filing. Your bankruptcy will be discharged once you have finished your payment.

Best to consult a bankruptcy attorney in your state – In your situation, it would be best to consult a bankruptcy attorney in your state who can help you make the most informed choice. You might want to consider debt settlement as an option as well.

For more details on chapter 7 and chapter 13, refer to our previous blog post. They are more in depth than my reply here because I do not want to repeat what we have already written:

Bankruptcy Chapter 7 Explained

Bankruptcy Chapter 13 Explained

Back in February I had posted about needing to obtain a new car loan after a bankruptcy discharge (but had reaffirmed our 2 car loans and mortgage) and the debate between having a co-signor or doing it on our own. I am happy to say that we did wait a couple of months and fixed all the errors on our credit reports and were able to qualify for a decent rate car loan from GMAC for a newer used car. I am grateful for the information we obtained from this blog and it was instrumental in our trying to get the loan on our own. Yes, it probably is at a higher interest rate than we would have gotten if my dad with his excellent credit has co-signed but in the long run, I do believe it will save us money because it will continue to improve our credit post bankruptcy and will make it easier in the future for us to get a loan on our own with better rates.

Thanks again for your wonderful information.

Randi Fechter

These were some of the things that I wanted Randi to share with us and this is her story. Read on to find out

Mr Credit Card : How did you get into bankruptcy (or why)? And which one 7 or 13?

Randi: We got into bankruptcy as a result of several things all combined. The first was having a few months of huge COBRA insurance payments when my husband changed jobs in Spring 2005. Because our younger son and I have asthma and I was in physical therapy for a shoulder injury, we needed to be sure to continue insurance without a gap in order to avoid pre-existing condition restrictions. We did not have any money saved to pay the $1000 per month charge. Up to this point we were living paycheck to paycheck but were able to make a little more than the minimum payments on the credit cards which were not even close to being maxed out. We had stopped using all of them about a year prior to this. Before the cobra payments we always paid everything on time. We would use tax return money and holiday bonus money to get caught up with bills or even send additional money to pay towards the balances due. I am not sure what our credit score was at this time since we had not tried to purchase a vehicle or refinance our home or even obtain new credit cards but figure it could not have been too bad since we were always getting preapproved credit letters.

In addition to the COBRA payments, in late fall of 2005, the Federal Government changed the way the banks had to calculate the minimum payments which then caused our minimum payments to almost double and was just more than we could afford. So, I had to start paying this card this month and that card the next. We continued on this way for a year or more. Eventually it got to the point when I just could not keep up. I repeatedly contacted the credit card companies and tried to work out something with them but they would not work with us. We continued to send them as much as we could but since it was not the minimum amount due, we had late fees assessed every month, credit limits significantly reduced and our interest rates skyrocketed. All three of these resulted in us maxing out our credit limits on each card and caused over-the-limit fees in additional to everything else. Every month or so, I would answer the phone and speak with the collection department in hopes they would work with us to stop the extra fees so that we could get caught up. For some reason we did not qualify for hardship and they would not reduce rates, wave late fees or anything else. They just wanted what we owed them. I would end up in tears and got nowhere with them. I had them tell me to stop stealing from them, that they might sue me for my house or garnish my wages to pay what I owe them or even that my husband and I should get second and third jobs in order to honor our commitment to them. I have since learned that what they did was illegal and I wished I had known then they were not allowed to threaten me that way. We continued to make enough money to pay utilities, mortgage, car payments and purchase food as well as continue to send as much as we could to each credit card company. Our tax return refunds had shrunk and the bonus money became less as the economy started its gradual decline which made it harder to keep up.

This all came to a head in the Fall of 2008 when I just could not take the threats and constant phone calls and no luck working out anything to get caught up. We started getting the threats of “your account is going to charge off and we will report it to the credit bureau”. Unfortunately we still could not pay them what they wanted and they would not work with us so the threat was pointless. One of the cards did charge off and the collection company that purchased the debt, sued us. The others were threatening the same thing. We had 8 credit cards with close to $50,000 in debt – a good 1/2 of that from interest rates, late fees and over the limit fees. The collection agencies would not work with us either to accept the amount we could afford to pay them. I was willing to send them financial statements showing what we earned and what we had after paying basic living expenses. They were not interested.

When we received the first summons in the mail, we decided to consider bankruptcy. We consulted a lawyer and decided that Chapter 7 was the best solution for us. Our attorney even advised us to see if we could secure new cars so that we could include the older cars and their respective loans in the bankruptcy rather than reaffirm them. Either way, we needed to have cars. We did not want to buy junkers to tide us over so we planned to reaffirm the loans if we were not able to purchase new ones. This was early October. We tried to get a loan to replace one of the cars – The car we were looking to replace all this time was a 2001 Grand Caravan with over 100,000 miles. Due to some poor financial advice we had financed the balance of the lease on the van a few years back which resulted in the loan being for more than the value of the van which did not help our situation. Our credit scores were in the high 400’s/low 500’s and were having a hard time getting a loan for a monthly amount that we would be able to maintain after the bankruptcy so we decided to reaffirm the loans and keep our cars. Since the equity in our house was not excessive, and the mortgage payments were ALWAYS on time, we were able to keep the house. NJ does not reaffirm real property so that was not reaffirmed and therefore included in the bankruptcy but since we continue to pay on time each month, we keep the house. I am still learning about the impact this will have on our credit. We are planning to look into a refinance but want to continue to improve our credit before doing that since our interest rate right now is lower than what they are giving to people with fair credit and what we would probably qualify for at this point would be significantly more than that. I don’t want to pay more in my refinance than I am now.

Mr Credit Card: How did you rebuild your credit after BK? credit cards etc?

Randi: Thanks to the information I have obtained through this blog, I accessed all three credit reports just as the bankruptcy was discharging in February 2009. At this time, our credit scores were 425-475. I started to challenge/dispute all those things that did not belong on our credit reports in the first place, home equity loans that had been closed and paid years ago, authorized users on cards that were included in the bankruptcy, etc. I challenged the way things were listed on there as being charged off but were also listed on there as included in the bankruptcy so they were dinging our score twice with the same account. The loan for the van was being listed as discharged when we had reaffirmed it. The second loan was reported as current which was a good thing and we had decided to keep this car since it was a newer car and working great. I was never able to find out whether the reaffirmed loan should be reported as a current loan so had a statement added to our reports that we reaffirmed it and that we continue to make timely payments on it. Although the mortgage is still listed as included in the bankruptcy, the mortgage company reports that we are making monthly on-time payments which is good for us. I do have one credit card for Chadwick’s that was not included in the bankruptcy but have yet to use it. I want to make sure I have the money to pay it off when I do use it so it will wait a little while longer, not to mention I don’t really need any new clothes right now.

Mr Credit Card: Describe the process and strategy you went through to finally get this auto loan (might as well describe the various auto lenders and their policies as well if you have shopped around).

Randi: After our experience in October 2008 when we tried to purchase the new or used car for a reasonable monthly payment amount with no success, we decided to approach it again in late January to replace the van when my father who has stellar credit offered to help up obtain a new car. He was going to purchase it for us and let us make the payments. He has a GM credit card and had been offered extra points up to $2000 worth toward the purchase of a new car and GM was running amazing rebates but he would have to be the owner or co-signor on the loan in order for us to use his reward points. He had hoped to keep our names off the loan application so that we would get the advantage of his credit score of high 700’s. We found out that my husband and I would not be able to insure or register the car in our name if we were not listed on the loan application and soon realized that since the bankruptcy had not yet discharged that the banks would not even consider us for a loan. We were also hesitant about having my dad co-sign on the loan based on info from this blog about how having a co-signer for one loan could result in needing a co-signer for any loan in the future. So, it was actually a blessing in disguise that the bankruptcy had not yet discharged.

I took the time to continue to monitor our credit and subscribed to the three-credit monitoring so that I could keep an eye on the credit scores and reports. In April, a friend considered purchasing our van which put us into the shopping mode again to replace the van. When they chose not to purchase the van, we decided it was time to shop again and trade it in since the van needed about $2000 worth of maintenance work and was only worth about that much while we owed $3100 on the loan. I did a lot of shopping on the internet to find the best price on a newer used vehicle with low mileage that would suit our needs. Buying used also enabled us to keep our payments at close to the current van loan payment which meant we would be okay paying that loan. We were able to include gap insurance and a 2-year bumper-to-bumper warranty extension in the sale as well.

We did not do any loan shopping prior to arriving at the dealership although I realize I should have done that but was concerned with taking too many hits on our credit report or applying to a scam loan company. The dealership we went to was the one we had worked with in January and had been extremely helpful and upfront with us (as upfront as a car dealership will be I guess). I was very honest about our financial history and bankruptcy. Before having us come in, they ran an initial credit check and their credit manager was confident we would qualify for a loan. So, we headed there this past Saturday, test-drove the vehicle and sent our application to 5 banks – World Omni (Southeast Toyota Finance) which is where our van loan was from, Sovereign Bank (which has our car loan), Bank of America, Wachovia and GMAC (which is actually who has our mortgage). The first three came back as rejected immediately due to the bankruptcy. They would not even look any further into our credit report. Wachovia came back as accepted but wanted to verify income (not a problem with paystubs) and had a high interest rate of almost 15%. Luckily for us, GMAC came back as accepted as well with an interest rate of 9.5% but did not need to verify income since we already had our mortgage loan with them. The interest rate is probably higher than we would have gotten had my dad co-signed but we did it on our own and I am sure that it will now help continue to improve our credit. I hope to try to refinance it for a better rate as our credit scores continue to improve.

Mr Credit Card: What was your credit score before BK, just after, and now?

Randi: Before the bankruptcy, our credit scores were 425-475. Just after the bankruptcy discharged in February, they were 475-525. After challenges/disputes, a little bit of time and some on-time car and mortgage payments, our credit scores are currently 600-675.

I am grateful to the Ask Mr. Credit Card blog for all the amazing advice and information I was able to find on the blog which helped us make some wise financial decisions to start the road to recovery after bankruptcy. It was a VERY hard decision to file the bankruptcy because we did not intentionally incur that debt with no plan to pay it off. We had guilt about not being able to pay it. I tried very hard to make those arrangements. It amazes me to this day that the banks did not want to work with us in any form. They left me with no option but bankruptcy and am now looking to the future to improving my credit and getting on with my life. Lesson learned and we are very careful with our finances. We are working towards saving some money and at some point in the near-future will look to obtain a credit card -whether it be secured or un-secured depending on what we will qualify for to help us continue to improve our credit.

Thanks,
Randi

Final note from Mr Credit Card: I want to thank Randi for her time in putting this together. I hope all of you have found this useful. If you have any questions, feel free to leave a comment and we’ll try to answer them (or get Randi to do so). If you have any success stories about rebuilding credit or any credit tips and you want your story published and shared, please use the contact form here.

I have charged quite a bit in the last month, thinking I was gonna get a large sum of money. Now I find out it’s only a few thousand, and to top it off, my husband has left me. I am thinking about filing chapter 13 bankruptcy now because there is no way I can pay for everything. But I’m a scared they will think I went on a shopping spree knowing this. What do you suggest?

Rae,

If you were to declare bankruptcy right now, it could very well look to the courts like you charged up your cards with no intention of paying them back. This is considered fraud, and you will want to be very careful about that.

In a bankruptcy case, each of your creditors gets a say – they get a notice in the mail that says you are declaring bankruptcy, and they have the right to appear before the court and ask that their account not be included, or have special arrangements made for repayment. It’s extremely rare that this happens (especially if you had a low limit with them), but creditors who see that you charged large balances only a month before a bankruptcy might be tempted to appear.

Now that said, there is a little more information I can give you about bankruptcy. There are six different chapters of bankruptcy, but Chapter 13, or Chapter 7 will be the ones you are concerned with.

In a Chapter 13, the court will approve a reasonable plan that will allow you to repay your debts over several years.

In Chapter 7, you make no repayment plan, and are absolved of your debt. You will need to talk to a lawyer to decide which Chapter fits your situation. If you have assets that you want to protect (your home, your car, etc.) then Chapter 13 is probably your best option. Again though, I am not a bankruptcy lawyer, you will need to speak with one of those before you make a decision about declaring bankruptcy.

Other alternatives to bankruptcy:

I went through a chapter 7 bankruptcy almost three years ago. I can tell you from personal experience that it was not fun. I still feel guilty about it, and wish that I had been able to arrange to pay my debts. Aside from that, it takes several years to rebuild your credit after a bankruptcy, and ten years for the bankruptcy to stop showing up on your credit report. It’s a serious, serious decision.

If there is a way that you could pay back what you owe sometime in the next five years, you may be better off trying to negotiate with your creditors yourself than declaring bankruptcy and ruining your credit.

You can get help too:

There are companies that exist solely to help you cut down your debt. They are usually called debt negotiation experts, or debt reduction experts. They will have to close your credit cards if they negotiate for you (which will lower your credit score). However, they can reduce your total debt by as much as 50%.

I am sorry to hear about your husband. Clearly your financial picture will change for a while. If you are having trouble making your monthly payments, talk to a debt negotiation person first, and see what advice they have for you. They might be able to help you reduce your payments enough that they are affordable again.

Barring that, please do talk to a lawyer about bankruptcy, and be sure you clearly understand what it will involve, not only to declare, but also the fallout and effort to repair your credit.

Thanks for your question.

Have a question for us? Leave a comment below!

Keep Reading and Grab Our RSS Feed:

• Repairing Your Credit After Bankruptcy Part 1
• Which Credit Cards Are Easiest To Get After Bankruptcy?
• Cleaning Up Your Credit Report After Bankruptcy

The best way to know which types of credit you can apply for after bankruptcy is to check your credit score. If your score is 600 or below, you will need to apply for a secured credit card, or a “bad credit” credit card.

Secured vs. Unsecured Credit Cards

Secured credit cards require you to deposit money in a savings account in case you default on the balance. They eventually revert to unsecured credit cards and you get your initial deposit back. Or, if you default on the loan, then the deposit is used to cover your balance, and you can walk away without the card hurting your credit too badly.

All in all, secured credit cards are by far your best bet, and I speak from experience. After my own bankruptcy I got one secured credit card, and one bad credit, unsecured credit card. The secured card had a much better rate of interest, lower fees, and I will get my deposit back.

The unsecured credit card had a high interest rate, monthly fees, and about $250 worth of fees charged to the card initially. The initial fees forced me to pay the balance down immediately so that it didn’t lower my credit score.

Credit cards for improving credit:

Some folks are able to get normal credit cards almost right out of bankruptcy too. A reader, Joseph , sent me the letter below about his experience after bankruptcy. He was approved for a Platinum Capital One Card 8 months after his bankruptcy. When I asked him what he did to repair his credit he replied:

The only thing I did was get a WaMu secured card after my bankruptcy (filed 1/25, discharged 5/01) in July of last year. It got canceled in January due to Chase’s decision. I tried to apply at BoA for a secured card, but they denied me because it wasn’t one year since the discharge, which was on 5/01.
Other than that, I did nothing to repair my score…I applied for a capital one card the other evening and instantly got approved. I don’t know all the details of the credit limit, but it was for a platinum card at 22%.
However I keep no balances anymore, so that doesn’t matter!

I was so excited to hear this from Joseph, because it does give hope to those of us in the process of repairing our credit after bankruptcy. I should point out though, that Joseph is doing everything the right way – he applied for a secured credit card right after bankruptcy and made regular payments. He also makes a point not to carry a balance on his credit cards, which is the single biggest thing you can do to help your credit score aside from making on-time payments.

We also had another reader, Patricia, who left this comment:

There are several places that will give you credit, but use it wisely. I filed bankruptcy 4/30/08 discharged 8/27/08 (will never forget that day). Recently got the nerve to apply for a credit card in April was approved through Capital One. I spent $11 and paid it off before I got my first statement (4/11/09). Target is also known to be bankruptcy friendly but if you are not a target shopper I wouldn’t get one. Anyway my advice is be patient and things will come to you.

So, it’s looking like Capital One is a good place to apply for credit once you have repaired your credit score a bit.

As for my own experience, right out of Bankruptcy I applied (and got) a secured credit card from Orchard Bank, an unsecured credit card from Indigo Bank (used to be a different company and I can’t remember the name now – but it’s currently Indigo Bank).

About a year after my bankruptcy I got a Target card as well.

So, please don’t worry that you won’t be able to get credit after bankruptcy. You definitely can. You may have to put down a deposit, or pay high interest rates for a while. I just chalk it up as the price for my past mistakes, and work towards qualifying for better terms. It can be done, and easily!

How about you? Do you have a credit repair story? Which cards did you use to raise your credit score? Please leave a comment below!

Keep Reading:

• What are secured credit cards?
• Bad Credit Credit Cards for People with Bad Credit
• What credit card should you get when your credit has been steadily improving?

A bit of background: Sam is the Debt Negotiation / Credit Restoration expert that we recommend most often to the readers who send in questions about their debt. We did a radio interview with Sam a while back, and I was really amazed by his level of knowledge about credit reports and debt negotiation.

Needless to say, I was really excited to get my hands on his book. I wavered for a minute when I picked it up, because it contains a little bit of language. However the language is mostly directed at scummy banks that take advantage of people every way they can. So, I understand the righteous anger. We get a lot of letters from people whose banks and credit card companies are treating them unfairly.

Language aside, the book got interesting quick. Sam begins with a basic bit of education, and then moves right on into more advanced topics. Here’s an excerpt:

Ever Been Turned Down For A Bank Account?

There are many types of ocnsumer reports. Some of the most popular reports that a consumer is going to come into contact with are the following: Dunn and Bradstreet, Experian Business Report and Check Systems.

Check Systems is a consumer report which is strictly used among the banks in an attempt to protect banks from allowing individuals with a past bad check writing history to open an account and leave a tornado of damage with more bad checks being written.

Most people aren’t aware that you are entitled to a free copy of your Check Systems consumer report, and you can dispute and remove negative items off of this report.

Check Systems has a policy that attempts to force you to deal directly with the banks and pay them back directly.

Pardon the pun, but they bank on the fact that you will fel useless and not know how to contact Checks Systems. They will not give you their Check Systems address, and they keep all information as secretive as they possible can.

That actually sounds a lot like the FICO score formula to me. For something that has such financial importance, it’s awfully difficult to decipher how it’s computed.

It doesn’t surprise me that Check Systems would try to prevent you from contacting them either. When we put together our Guide to Challenging Items On Your Credit Report, it was difficult for us to find the addresses for the three main credit bureaus too.

These agencies do not want you to contact them. Disputes are a headache for them. Never mind that it’s our credit scores that suffer when incorrect information gets listed.

A Consumer Report has no legal validity although it’s treated like gold. It is not a legal document.

The credit report is not a true reflection of your credit. It can not be used as such in a court of law. It is just a consumer report.

A smart person will utilize this to their benefit, while others will have it utilized to their detriment.

Your good credit isn’t on your credit report – Car insurance, medical insurance, water bill, electric, health club, rent, etc. Your bad credit doesn’t have to be on there either!

This really is an important point to understand. Your credit report is not a legal document. Nore is it an accurate representation of how you pay all of your bills – only some of them. Many, many companies only report negative information to the credit bureaus, never positive. So, it’s possible to pay your bills on time every year for five years, and never have that positive payment reported. Then the first time you have an emergency and you are late, the late payment will show up on your credit report.

Our credit reports belong to us, not the credit bureaus. The credit bureaus keep those records on behalf of the banks that use them, but your report belongs to you. What’s on it is your responsibility.

Most people’s credit reports contain inaccurate information. Period. Chances are if you check all three of your credit reports you will find information that is incorrect. Bad information that lowers your score needs to be removed.

When you understand that your credit reports belong to you, and what goes on them (or off them) is your responsibility, it opens up a whole new world. Credit reports require at least once yearly maintenance, if not more often. Regular maintenance also helps to prevent identity theft.

The MIB

The MIB, better known as the Medical Information Bureau, is the consumer reporting agency that contains your medical information and past history. If you get turned down for insurance because of a pre-existing condition, it’s because this report contained negative information. The good news? It belongs to you too, and you can have things added, or removed as you need to.

Work the system, don’t let it work you. Neglecting your consumer reports only hurts you in the long run, it never helps. If you could count on everything to be accurate 100% of the time, then you could possibly say, “Well, I was late on those payments, and now it’s on my credit report, I won’t let that happen again.” However, sometimes it’s even possible to have someone else’s bad accounts listed on your credit reports. It’s never 100% correct. You do have to maintain and update all of your consumer records. Otherwise you will never know if it’s your mistakes that lowered your score, or a reporting error that disqualified you from a better interest rate.

So, which inaccuracies are you legally allowed to challenge on your consumer reports?

If the information on your consumer reports falls under any of these categories, then you have the right to have it removed:

• Obsolete
• Outdated
• Misleading
• Erroneous
• Inaccurate
• The date of occurrence is incorrect (Even by a day)
• Your name is misspelled
• Along with other information.

You have a legal right to have that consumer reporting changed or updated, but you also have a right to have it removed completely for being less than 100% accurate.

For now, if you want to know more about how to challenge information on your consumer credit reports, you can check out our guide. Next week we’re going to take a look at Sam’s specific hints and tips for doing this, and see if we can pick up any new information that might be helpful.

Don’t forget to grab our free RSS feed so that you don’t miss the rest of the review.

Thanks go out to these carnivals for featuring our articles this week:

• Carnival of Personal Finance: World Record Edition @ Wide Open Wallet
• The Carnival of Financial Planning @ The Skilled Investor’s Blog
• The Carnival of the Vanities @ Dodgeblogium
• The Festival of Frugality @ Lady Luck
• The Carnival of Twenty Something Finances: Spring Is In the Air Edition @ Independent Beginnings
• Bankruptcy & Debt Carnival #30- March 30th 2009- Now Online! @ Bankruptcy Access.com

You’re website is the best I’ve found regarding credit questions and suggestions. Thank you for helping so many of us out!

I am overwhelmed, as many are, right now. My husband was a very successful contractor for the three years he was in business. The economy tanked and none of our potential customers can get loans right now.

Due to the newness of the business, we are still paying on a high amount of equipment and were paying our employees full pay for over a year after prices dropped dramatically and we were not making any profit.

Basically, we paid all of our bills with credit cards and a home equity loan to stay a float during the rough times and now, our debt is bursting at the seams. By some miracle we have managed to make all our payments on time but are not seeing a quick fix to the economic problems that directly affect us.

I have been applying for a second job and my husband is trying to stay busy with small garages and porches while looking for jobs as well. We have applied and interviewed with countless employers to no avail. The competition for job hunting is ridiculous at the moment.

I don’t know how much longer we can pay our bills. Our debt is well over 500,000 including business and personal and our monthly payments are $14,000.00. We are constantly agonizing and stressing over if we will be able to make our payments. It is greatly affecting ours and our young children’s happiness. We are 32 years old with 2 small children.

My question is, should we file bankruptcy and if so, what kind? Should we do credit counseling? Should we try to get a huge consolidation loan?

I am not sure what to do where we haven’t made any late payments yet and with such an unknown income future if we would be able to pay our debt off in 5-10 years as suggested in previous forums.

Most of our business debt was purchased using our personal names so could we file a business bankruptcy only?? Please inform us better of the huge decision we have ahead of us.

Wendy

Wendy,

When considering bankruptcy, the first step is to determine the amount of debt that you will be personally liable for. That will depend on a couple of things:

The type of business that you own:

Sole Proprietorship:

If you are a sole proprietorship, then you and your business are one and the same as far as your debt is concerned. Anything the business owes (as a general rule) you owe too.

Partnerships:

In a partnership, each partner is liable for the entire amount of the businesses’ debt. That means that if you were partnered with someone who had no money or assets, and the business went under, you would still be liable for the entire amount the business owed.

In the event of legal action, each partner can be named as being responsible for the debt.

Corporations and Limited Liability Companies

In the even that your business is a corporation, or a limited liability company (LLC) then your personal assets should be safe if the business goes under. There is one exception to this though, and it is a very common one: If you have personally guaranteed the debt by giving out your social security number, or by using personal property as collateral, then you are still liable for the debt. Even if you own a corporation or LLC.

Personal Guarantee:

In your question you stated that you did give your personal guarantee for most of your business debt. That means that even if you declare corporate bankruptcy, your personal assets will still be at risk.

So, what do you do?

Find a lawyer in your state. Sit down with them and take along all of your paperwork. By paperwork I mean, the total amount that you owe, both personally and as a part of your company. Have a separate total for the amount of your business debt that you believe you will be personally liable for.

Ask the lawyer about your personal liability, and find out whether a corporate bankruptcy is right for you, or whether or not you would need to file for personal bankruptcy to protect you assets as well.

Only someone who can sit down with you, and take into account every part of your financial situation should advise you – so you should definitely meet with a lawyer close to you and get their opinion.

I can go over your options a little though, so that you are more prepared when you meet with them.

Chapter 7 Bankruptcy:

Companies, and people can declare Chapter 7 Bankruptcy.

In a Chapter 7 bankruptcy, you business would close it’s doors completely and liquidate it’s assets.

In a personal Chapter 7 bankruptcy, there are income requirements that you must meet in order to qualify. (You can’t make over a certain amount, and that amount varies by state.)

Personal chapter 7 bankruptcy is usually not a good option for people who have assets that they want to keep, like a home, vehicles, etc. It doesn’t always mean that you will lose your home, there are exemptions by law, so you will need to talk to a lawyer in your state about this too. If your income is completely uncertain, Chapter 7 may be your only option. If you have any way at all to make payments (even reduced ones) then Chapter 13 is probably a better option for you.

Chapter 13 bankruptcy:

A Chapter 13 bankruptcy is essentially a court-ordered repayment plan.

Whether you declare Chapter 13 as a business, or personally, you will sit down and work out a repayment plan for your debt. A judge will approve your plan, and you will be considered “in bankruptcy” until your debts are repaid.

There are two major benefits to a Chapter 13 bankruptcy.

The biggest benefit is that your business can continue to operate while you pay back your debt. The second biggest benefit is that you get to keep your personal assets, home, car, everything.

In your situation:

I would call the debt negotiation associates first. See if you can get them to negotiate on all, or part of your debt. Particularly the part of your business debt that you are personally liable for. Yes it will hurt your credit score a little, but you could actually end up repaying far less than you would under a Chapter 13 bankruptcy.

You should also speak with a lawyer in your state and go over your options. If you are ok with closing your business, then a Chapter 7 business bankruptcy, coupled with a chapter 13 personal bankruptcy could be an option for you. Otherwise you could consider Chapter 13 for both your business and yourself.

As I said though, don’t be afraid to bring in the professionals. Get in there and really tackle this situation, because there is light at the end of the tunnel. It’s not impossible to work this out, it just takes effort and time.

I definitely commend your efforts to continue paying your employees, even past when your business could afford it. There are going to be quite a few tough decisions from this point on. Just speak with a couple of experts in the field, and see what they can really do for you.

Most importantly, ask the debt negotiator, and your lawyer, about the long term impact for you financially. Which methods will get your debt paid off fastest? How soon can you recover from each of these options?
Once you’ve talked to both of those experts, you should have enough information to know which decisions are going to work best for you.

Mr Credit Card,

You’re website is the best I’ve found regarding credit questions and suggestions. Thank you for helping so many of us out!

I am overwhelmed, as many are, right now. My husband was a very successful contractor for the three years he was in business. The economy tanked and none of our potential customers can get loans right now.

Due to the newness of the business, we are still paying on a high amount of equipment and were paying our employees full pay for over a year after prices dropped dramatically and we were not making any profit.

Basically, we paid all of our bills with credit cards and a home equity loan to stay a float during the rough times and now, our debt is bursting at the seams. By some miracle we have managed to make all our payments on time but are not seeing a quick fix to the economic problems that directly affect us.

I have been applying for a second job and my husband is trying to stay busy with small garages and porches while looking for jobs as well. We have applied and interviewed with countless employers to no avail. The competition for job hunting is ridiculous at the moment.

I don’t know how much longer we can pay our bills. Our debt is well over 500,000 including business and personal and our monthly payments are $14,000.00. We are constantly agonizing and stressing over if we will be able to make our payments. It is greatly affecting ours and our young children’s happiness. We are 32 years old with 2 small children.

My question is, should we file bankruptcy and if so, what kind? Should we do credit counseling? Should we try to get a huge consolidation loan?

I am not sure what to do where we haven’t made any late payments yet and with such an unknown income future if we would be able to pay our debt off in 5-10 years as suggested in previous forums.

Most of our business debt was purchased using our personal names so could we file a business bankruptcy only?? Please inform us better of the huge decision we have ahead of us.

Wendy

Thanks for your question Wendy. You are going to want to contact several experts so that you fully understand your options, but I can give you a place to start.

Debt Negotiation Services:

Debt Negotiation Services (Or Debt Reduction Experts) are companies that exist only to negotiate debt on your behalf. (If you find a good one that is!).

So, what would happen if you used a debt reduction expert?

You would start by getting together your entire financial picture. How much you owe, and to which creditors. Keep a list of the contact information for everyone that you owe money to.

Then, you contact a debt reduction expert. They will take a look at all of your debt, and your current creditors. Then, they will work out a payment plan with you. You will write your check to them, and they will pay your creditors off.

Why would you want to do that?

Debt Negotiation Experts will negotiate the total amount of your debt downwards. (Sometimes to as little as half of what you now owe.) They can also re-negotiate to lower your monthly payments, and they have experience cutting deals with lenders to get you out of debt faster.

How it works:

When you turn your information over to a debt reduction expert, they will call your creditors, and negotiate new terms for your accounts. This is usually done by closing out your revolving credit accounts (This does hurt your credit score.)

Once the accounts are closed, they can offer a lump sum settlement on the debt (if you have the money available) or they can work out a reduced payment plan over a number of years.

The good part is, your debt is being expertly managed, and you can make one payment and focus on raising your income.

You do want to make sure you are dealing with a professional if you do this though, and they may still not be able to help you – only someone who can take a look at your complete situation will be able to tell you that.

We work with a very good debt negotiator here at Ask Mr. Credit Card. His name is Sam Sky. You can find out more about Sam by listening to our interview with him, and you can also fill out a contact form to ask him specific questions. It’s free to do that.

So, that’s one option. If you know that you can make regular monthly payments (even if those payments are less than what you are paying now) then it could be a good option.

However, it will be difficult to run a business with no open credit accounts, so there may be some loans that you want to leave out of the negotiations, or handle yourself.

The Do It Yourself Method:

The do it yourself method involves contacting each of your creditors yourself to negotiate terms, and / or getting a large consolidation loan with better interest rates.

It really wouldn’t hurt to investigate your options here. However, it could be very difficult to get a bank to offer you a loan that large in the current economy. You did say that you hadn’t made any late payments yet – that is a real plus. Especially if your credit scores are high enough.

Still though, if your business is in trouble then a consolidation loan may be hard to come by. If you take this path you will most likely have to sell some of your business assets, and re-negotiate the terms of your loans on your own.

This could actually hurt your credit score too, especially if you had a series of late payments while you were attempting to negotiate.

So, how do you do it?

To start with the do it yourself method, you will want to check both your business and personal credit scores.

Last time I checked, personal FICO scores were around $50 each. (This could vary depending on FICO’s promotions).

Business credit reports from Dunn & Bradstreet can cost upwards of $500 for a one-time report.

It’s not absolutely essential to know your credit score before applying for a consolidation loan, but it does help you to be more prepared.

Try to use a lender that you have worked with in the past, that you have a series of on-time payments with. Speak with them in person and take all of your financial information with you.

I’d love to tell you that you can definitely get a large consolidation loan, but with the credit crunch hitting banks hard, this is probably not going to happen.

If you have a lot of high interest rate revolving debt, you can try to transfer even a portion of your balance to something better.

Even if you can’t get a jumbo consolidation loan, you could possibly get one to cover the parts of your debt with the highest interest rates. This will lower your monthly payments a little.

Once you see about getting a loan, you will also need to begin negotiating with your creditors yourself.

This will involve contacting your lenders individually and explaining that you are having trouble making your payments. You can ask them about hardship programs, or reduced payment arrangements. Some of them will work with you, some of them will not.

For lenders that do not want to work with you, you can try this tactic:

Go a few days past due on your account and then call them back. The collection representatives are definitely trained to help you set up payment arrangements. It stinks when you have to do this because you get late marks on your credit report, which lowers your credit score. (That’s why I say apply for the loan first). Unfortunately, some companies are not willing to work with you until you are behind on your payments.

To decide whether or not this is something you really want to tackle yourself, sit down with your husband and take a good look at your financial situation, especially as far as the business is concerned.

Where can you cut back? Is there any place left that you can squeeze more money out of? Do you have any assets that you could sell to negotiate lump sum payments with your lenders?

My honest advice, if you choose to repay your debt, is to speak with a professional debt negotiator. Because you have so many accounts, and a large amount of debt, it will be easier and better for everyone if you have a professional handle it.

Have a pro go over the numbers – what you owe, how much you can pay each month, etc.

Find out how long it will take you to repay your debt if they can reduce it for you. Many times professional debt negotiators can get results with your lenders that you can’t.

The generally accepted advice is that if you can pay your debt back in less than 8-10 years, then it is better to do that than to declare bankruptcy.

So, before considering bankruptcy, at least see if they can help you – it might save you a lot of trouble. Make sure you ask a debt negotiation expert whether or not they think bankruptcy is a better option for you. If they do, you will want to speak with a lawyer in your state.

I’m going to respond to the other half of your question concerning personal and corporate bankruptcy tomorrow, so please check back. I wanted to give each of your options specific attention.

Have a question for us? Leave a comment below!

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• Credit Restoration Brokers – An Interview With Sam Sky
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Hello- I filled for Chapter 7 BK eight years ago. Out of the blue, I called AMEX to see what the probability of me getting the Delta branded card and let her know about the BK. She said a 50/50 chance as they do approve them.

What is the likelihood of getting approved Mr. Credit Card? I’ve never made a late payment, am an “Authorized User” on another AMEX (Costco) card.

However, I have a feeling the second they see Bankruptcy it is immediately shot down and it isn’t even reviewed. At least other banks will review the situation. I have cards with every other major bank except Citibank. Of which I pay my balance off in full each month.

Thoughts/suggestions? Should I call in and speak to a manager? It is rather frustrating.

Ryan

Ryan,

Definitely call and speak to a manager. It will help if you know what your credit scores are.

I would call back and ask someone at American Express to tell you which credit score they use. The credit score they use for a decision could be from TransUnion, Experian, Equifax or FICO. Once you know which credit score they use to make a decision, you should purchase that credit score.

Once you know your credit score, call Amex back and speak to a manager. Tell them you have a prior bankruptcy, and your credit score is X. Just don’t hang up until you can speak to someone who can tell you for sure whether or not the bankruptcy will disqualify you. Best of luck.

What happens to your credit score when you close an account that you never activated?

Reader Terri had this question:

in Aug. 2008 I opened up a Master Card account with WaMu. Soon after I got approved and got the actual card, WaMu became Chase.

I did not activate this card. I have never used this card. This account has a $4,000 credit line. I have 2 other credit cards – BOA ($36,200) and AMX ($6,000). will my credit score be affected if i cancel the Chase account?

Terri

Terri,

Since you never activated the account, and you never made any charges, then it should not hurt your credit score if you close the account.

If you want to be very sure about that, then you can visit Annual Credit Report, and pull all three of your credit reports. If the account appears there (and it really should not) but if it does, it will impact your credit score.

Regardless you will see an inquiry from where you opened the account. This is not what you are worried about. Check to see if it shows up as an open, revolving line of credit.

If the account does show up as a current credit account for any reason then you should probably leave it open. Especially if you are carrying a revolving balance on either of your other two cards.

If both of your two other credit accounts are paid off completely, then closing the account is not that big of a deal.

Best advice: Check your credit reports, it’s the only way to be sure.

Have a question for us? Leave a comment below!

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