How to Restructure Credit Card Debt

For consumers struggling to make ends meet and racking up credit card debt and barely making minimum payments, hardship programs might provide a welcome relief.

Many credit card companies offer these programs that target borrowers who have fallen behind on payments. They typically offer debtors lower interest rates as well as reduced payments, fees and penalties. In general, most hardship programs fall into two categories: short-term, which could be for a few months or up to a year, or permanent which is until the credit card balance is paid.

Credit card companies don’t publicize these programs because they hurt revenues due to the lowered interest rates. But for most banks, these programs are a better option than not getting any money back as a result of an individual’s default or bankruptcy.

Delinquency: Not a Good Strategy

There are a couple of things to keep in mind when approaching a credit card company about enrolling in a hardship program. Most creditors will want to look at your income and expenses so be prepared to explain your budget. The company will evaluate your ability to pay your debt to determine your eligibility.

They will also look at your account history, so it is a good idea to inquire about the program before falling behind on payments. Using delinquency as a strategy to get your creditor to work out a deal with you is a bad idea. You’ll get a more sympathetic ear if you approach them prior to missing a payment.

Hardship programs are not designed for reckless spenders who have maxed out their credit cards and are looking for an easy way out. They are aimed at debtors who have been hit by catastrophic, life-altering crises like a job loss, major illness, inability to work or loss of spouse or breadwinner. That is not to say that banks will not work with you if you don’t fit into one of these categories.

Stop the Plastic Habit

Be warned that these programs usually mean you will lose use of the credit card. In most cases, your charging privileges will be suspended or revoked. Some companies, however, have programs that restore your privileges upon completion of the program.

Entering a hardship program could also impact your credit score. Before entering the program it is a good idea to ask what repercussions this could have on your credit. Some companies negatively report this information to credit bureaus. Sometimes the negative references on your credit are removed after the program is completed. When negotiating with your creditor about being placed on the hardship track, it is important to understand the card issuer’s policies and the consequences.

The policy on credit reporting depends on the company. Most short-term plans are no more than a year. Long-term plans can go as long as five years. American Express, for example, doesn’t negatively report borrowers on short-term programs. But those who are on long-term programs should expect large dings on their credit regardless of what bank or issuer you owe.

source: foxbusiness.com

Bankruptcy: Debt forgiveness for honest debtors

CONTRARY to what others may think, the majority of people who file for bankruptcy are honest, hard working people who simply need to get a fresh financial start.  Because life is not perfect, there are times when we are so way in over our heads in debt that filing for debt relief becomes unavoidable. Filing for bankruptcy is NOT a crime. If it was, our Congress would not have passed laws that allow people to do it. Our bankruptcy laws, although they have changed to keep up with the changing times, have been with us for many decades and it is safe to assume that they will always be an important part of our legal system.

The “fresh start” concept of Bankruptcy is based on the idea of forgiveness. The honest debtor who either has limited or no resources to pay back creditors is given a chance to start a new life free from the burden of debts. If you’ve ever been in a situation in your life where you have fallen behind on debts and you are being harassed by creditors day and night, you know what I mean.

And although some creditors may agree to work with you while you’re going through a time of temporary financial hardship, in most cases the time that they give you is too short to be of any real help. And once you start falling behind, it gets harder and harder to catch up with each passing month because your bills begin to “snowball” in a very short period of time.  Some people erroneously believe that even if they fall 60-90 days behind on debt payments that they will retain their good credit standing with creditors. Remember that once late payments are recorded on your credit report, whether 30, 60, 90 or more days being late, that negative information stays on your credit report for 7 years from the date last reported.  Most people who file bankruptcy already have a tarnished credit rating due to delinquent payments. In the long run, filing bankruptcy can actually help rebuild your credit. And it doesn’t take that long to rebuild credit, either. You’ve probably heard of people filing bankruptcy and then being able to buy a house in as little as 3 years.

Filing for bankruptcy protection can help you protect your home, car, bank account and other assets. In a Chapter 13 debt consolidation, even non-exempt assets can be protected as long as a fair plan is feasible to pay debts over 3-5 years.  And if all or almost all of your debts are credit card debts, you can pay 0% interest, reduce your monthly payment to a very low amount (in a lot of cases, lower than 50% of what you are currently paying) and get out of debt in as short as 3 years. Filing for bankruptcy protection can also stop foreclosure on your home or other real property, perhaps eliminate a 2nd mortgage (to make your home more affordable), stop wage garnishments, bank levies and stop even the IRS if you owe back taxes. By consulting with a knowledgeable bankruptcy attorney, you may find out about options you didn’t even think you had.


So if you find yourself in a tight financial situation after being laid off from a job, being sick, going through a divorce, a failed business, a family or personal emergency costing a lot of money, or any other situation that was beyond your control, don’t lose hope and there’s no need to feel embarrassed about your situation.  Instead, take action now by finding out if bankruptcy can help you get the fresh start that you need. To schedule an appointment with our office, please call TOLL FREE 1-866-477-7772. We have offices in Glendale, Cerritos, West Covina and Valencia.

source: asianjournal.com

Purging taint of eve of bankruptcy car purchase

LET’S say you have 2 old cars, a 1995 Camry, and a 1990 Taurus. You have $100,000 of credit card debt. You and your wife are both registered nurses and your combined household income with both of you working 2 jobs each is $250,000. You lost two investment properties in Las Vegas resulting in one 2nd trust deed of $80,000 on collection and threatening to garnish your wages. Both the Camry and the Taurus need constant repairs. The last repair was $3,000. You decide to trade in both cars for a brand new MB E 350, and a Lexus 400. The payment for the M-Benz is $950 monthly and $900 for the Lexus. Because of the two car payments, you cannot pay the $3,000 monthly for interest on the credit cards. So, after 4 months, you decide to seek bankruptcy relief. Will the fact that you traded in your old cars for new cars which require almost $2,000 of monthly payments 4 months before bankruptcy affect your ability to get a discharge?

The general rule is there is nothing wrong with pre-bankruptcy planning. Debtor can convert non exempt assets into exempt, trade in assets and assume new debt to buy a new car if that is justified, right before bankruptcy. However, the circumstances are relevant. In this example, debtor should keep evidence of the $3,000 car repair bills because that is evidence that the cars needed to be replaced. But note that debtor in this example bought two luxury cars requiring $2,000 of monthly payments. In some cases, the kind of car purchased pre-bankruptcy does not raise a red flag. But I have heard a judge opining that if debtor bought a civic, that’s a normal car, but M-Benz is a luxury car. It all depends on what type of bankruptcy is being sought. In a Chapter 13, the trustee may raise a good faith issue if debtor attempts to deduct the new car payments in calculating the plan payment.

In Re Williams, six days before they filed for Chapter 13 relief, the above-median income debtors owned three cars: 1996 Buick Skylark, 2007 Lexus RX-400H, and a 2007 Lexus ES-350. The Buick was fully paid. They bought a new 2011 Lexus RX-350 SUV on August 5, 2011, for $47,000. They traded in the 2007 Lexus RX-400H and the 2007 Lexus ES-350 as part of the same transaction for which they received a net credit of $14,111. They borrowed $35,000 to pay for the new car, payable over 75 months at $565 monthly whereas the monthly payment on the 2007 Lexus RX-400H was $484 and $866 for the 2007 Lexus. There were 12 payments left on the former and 24 payments left on the latter. They filed for bankruptcy on August 11, 2011. The trustee objected to confirmation of their plan partially on the ground that it was filed in bad faith.

The court sustained the trustee’s objection and told the debtors they could confirm a plan only if they treated their creditors as if they had sold the ES-350 and kept the other two cars. The plan they proposed, which treated their car payments as if they had not purchased the new card, did not “purge the taint of the improper car purchase on the eve of bankruptcy.” The debtors argued that by replacing their current vehicle ownership expense deduction with what they payment would have been if they re-amortized the two car loans that existed before they purchased their new car placed their creditors in the same position that they would have been in had they not improvidently purchased the new car. “While this approach has some appeal, the court cannot accept it…” Perhaps the fact that the judge drove a Ford Focus, and the trustee, a Yugo, had something to do with this decision?

Would there be a difference in Chapter 7, or if the cars were purchased 4 months pre-bankruptcy, probably?

source: asianjournal.com