Archives for February 2014

How creditors in bankruptcy can lose out by “sleeping on their rights”

At recent bankruptcy conference I attended, we reviewed a lot of recent cases. These all reinforce something I have told many people over the years: when faced with a bankruptcy of someone who owes you money, delay and inaction can be a costly mistake.

Some examples: A mortgage creditor who failed to object to a modified Chapter 13 bankruptcy plan that gave the homeowners two years to sell their home and a similar period to sell their business equipment (also part of the bank’s collateral) lost the right to later seek permission to foreclose on the home through a motion for stay relief. It made no difference that before the modified plan was confirmed by the bankruptcy court, the debtors had agreed that the bank could have stay relief if they failed to meet certain payment obligations. The later approval of the modified plan controlled.

In another case, the bank had an Assignment of Rents on the debtor’s rental property that gave it the right, if the bank served notice of default, to collect the rents directly from the tenants. Although the debtors defaulted, the bank did nothing, and the debtors continued to collect the rent (while not paying the bank). The bankruptcy trustee stepped in to try to get the rents back. The court said no because the rents belonged to the bank IF they asked for them.

I had another case recently where a landlord who was owed rent by a tenant in Chapter 13 did nothing for the first few months when the tenant seemed to be resuming payment (but not paying the past due amounts which were supposed to be paid bakc under the Chapter 13 Plan). The deadline for the landlord to file a proof of claim passed without the landlord filing a claim. The debtor stopped paying rents. The landlord has probably forfeited its right to get paid anything on its back rents owed when the bankruptcy was filed.

There are many other examples I could provide. The takeaway for creditors is to start acting as soon as you learn of a bankruptcy filing, especially in Chapter 11 and Chapter 13 cases. When in doubt file a proof of claim and stay on top of what is happening. Pay attention to all notices and deadlines in them. Most importantly, creditors need to find out what the bankruptcy means for them and  develop a plan of action.

With over 30 years of experience representing creditors, trustees and debtors, we are able to help with timely and cost effective advice.

 

Protecting or rebuilding your credit- tips from CARE

Every now and then something crosses my inbox that is so worthwhile I feel compelled to pass it on. Here is one from the ABI’s CARE program [CARE stands for Credit Abuse Resistance Education. Here is their website: www.care4yourfuture.org
Anyway, so much of what they have to say is “spot on” and what I have been suggesting for years:
Proper CARE and Feeding: Your Credit Score
It pays to keep your credit score in good health. Follow these easy steps to keep your credit score in top condition.
Get an annual checkup. It’s free, and it doesn’t hurt a bit. Contact one or more of the three major credit bureaus to obtain your credit report and credit score. Contest any inaccurate information so that it can be corrected as soon as possible.
Equifax: 800-685-1111; P.O. Box 740241, Atlanta, GA 30374; www.equifax.com Experian: 888-397-3742; PO Box 2002, Allen, TX 75013; www.experian.com. TransUnion: 800-888-4213; P.O. Box 2000, Chester, PA 19022; www.transunion.com.
Pay your bills on time. Delinquent payments and collections can have a major negative impact on your credit score.
Keep balances low on credit cards and other “revolving credit.” High outstanding debt can affect your credit score.
Don’t open new accounts just to have a better “credit mix”. It probably won’t improve your credit score. Applications for credit show up as inquiries on your credit report, indicating to lenders that you may be taking on new debt. It may be to your advantage to use the credit you already have to prove your ongoing ability to manage credit responsibly.
Pay off debt rather than move it around. Also, don’t close unused cards as a short-term strategy to improve your credit score. Owing the same amount but having fewer open accounts may actually lower your credit score.
Protect your credit information from fraud and identity theft.
Avoid overextending yourself. Don’t need it? Can’t afford it? Don’t buy it.
Change is not always good. You need to understand how very specific actions will affect a credit score. For example, will closing two of your revolving accounts improve your credit score? While this question may appear to be easy to answer, there are many factors to consider.
Credit scores are based entirely on the information found on an individual’s credit report. Any change to your credit report could affect your credit score. Simply closing the two accounts not only lowers the number of open revolving accounts (which generally will improve credit scores), but it also decreases the total amount of available credit. That results in a higher utilization rate, also called the balance-to-limit ratio (which generally lowers scores).
One change may actually affect several items on your credit report. It is impossible to provide a completely accurate assessment of how one specific action will impact your credit score. This is why the “credit risk factors” provided with your score are important. They identify what elements from your credit history are having the greatest impact so that you can take appropriate action.
Time is on your side. It takes time to improve credit scores. If you have negative information on your credit report, such as late payments, a public record item (e.g., bankruptcy) or too many inquiries, you may want to pay your bills and wait. Time is your ally in improving your credit scores. There is no quick fix for bad credit scores.
How long does it take to rebuild a credit score? Actually, you don’t rebuild the credit score. You rebuild your credit history, which then is reflected by your credit score. The length of time to rebuild your credit history after a negative change depends on the reasons behind the change, and these new elements will continue to affect your credit scores until they reach a certain age. Delinquencies remain on your credit report for seven years. Most public-record items also remain on your credit report for seven years, although some bankruptcies remain for 10 years, and unpaid tax liens remain for 15 years. Inquiries remain on your credit report for two years. CARE_ICON_COLOR.1
Of course, for many people the first step is to get relief from overwhelmining debt so that they can take back control of their lives and start this process. If this is you or someone you know, we can help!

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