Going bankrupt is one of the most emotionally and financially devastating events that can take place in an individual’s life. Although it can feel like an isolating experience, a total of 1,467,221 non-business bankruptcies were filed in US federal courts in between September 2010 and September 2011. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has changed the rules for petitioning for bankruptcy. The changes aim to provide financially education and support to troubled consumers throughout the bankruptcy and discharge process. The decision to file bankruptcy yourself, or with a bankruptcy lawyer, is a serious consideration with real consequences to juxtapose the benefits. As such, the new act ensures that consumers do not enter the process without qualified bankruptcy advice.
The education component of the 2005 act is comprised of two parts: pre-bankruptcy counseling and a post-bankruptcy debtor course. Under the new bankruptcy law, individuals who intend to file for bankruptcy protection must receive credit counseling from a qualified agent. Once the required counseling is completed, a certificate of proof must accompany the Chapter 7 or Chapter 13 filing. The purpose of mandating a pre-filing counseling session is to enable consumers to fully understand the potential advantages and disadvantages of, and alternatives to, going bankruptbefore action is taken. Bankrupt individuals must also complete a post-bankruptcy debtor education course before their debts will be discharged.
The benefits of bankruptcy counseling include an in-depth discussion of the circumstances that led you into financial difficulty, an evaluation of your personal financial situation from a qualified credit counselor who will also discuss your alternatives to bankruptcy, and develop a budget or repayment plan specifically for you. The fee is generally in the $50 range, depending on factors such as where you live and the types of services you receive. The counselor will discuss all fees with you before starting the counseling session. If you cannot afford to pay for credit counseling, request a fee waiver before your session begins. The counseling organization is required to provide the counseling free of charge for those consumers who cannot afford to pay.
Your ability to make an informed decision about whether bankruptcy is the best solution for your particular financial situation depends on your full understanding of the repercussions associated with bankruptcies and awareness of feasible alternatives to filing bankruptcy yourself. This education can only come from bankruptcy professionals such as credit counsellors and bankruptcy lawyers.
You are not required to be represented by an attorney, but bankruptcy lawyers are able to provide you with valuable bankruptcy advice. In light of the recent changes made to bankruptcy law, an attorney will help you understand your rights and the consequences of your bankruptcy case. If you decide to file a Chapter 7 or Chapter 13 bankruptcy petition, the advice and assistance of an experienced bankruptcy lawyer is generally a worthwhile expense
Your FICO score may be better known to you as your credit score. This system of measuring your “credit worthiness” was founded by the Fair, Isaac and Company and has been used reliably by lending institutions since the mid-1960s. The FICO system determines your credit score based on how well – or poorly – you manage your debt. In the case of individuals who wish to declare their self bankrupt to gain relief from creditors, bankruptcy lawyers can advise their clients of the impact various types of bankruptcy can have on a FICO score.
Your FICO score takes into consideration whether you pay your bills on time, how many credit cards you have, how much debt you carry, whether you pay the balance each month and whether you are currently bankrupt or released from bankruptcy. All of these details are compiled by three credit bureaus who track our financial activities. Every time you pay – or fail to pay – a bill on time, it gets reported by your lender/ creditor to one (or more) of three credit bureaus.
Your financial track record indicates your credit worthiness through your demonstrated ability to repay what you borrow from lenders. Your score is a predictor of whether you are going to repay the money on time and in full, whether you are likely to default on your payments and whether you’re on the path to making an appointment with bankruptcy attorneys. The higher the default risk you pose to creditors, the higher the interest rate they will charge you. High interest rates are the lenders’ insurance against the losses they expect to incur in the event you fail to repay your debt.
What do FICO scores look like?
- 850-720 (Really good)
- 559-500 (Not good)
- 000-499 (Really bad)
How is my FICO score calculated?
- Payment history (35%) – Late payments and various types of bankruptcy have a negative impact on your score. Risk is calculated by how frequently you miss payments, how long it takes you to pay, how recently the late payment event took place, whether you’re currently bankrupt or how long since you’ve been released from bankruptcy.
- Outstanding balances (30%) – Risk is calculated by comparing your total balances with your total available credit.
- Length of credit history (15%) – Your score favours how long your various credit accounts have been open and how frequently you use the accounts.
- New Credit (10%) – Opening more than one credit account within a short time frame is a good way to begin establishing a credit history.
- Types of credit (10%) – Your score considers the total number and types of accounts open in your name. It looks at the number and type of credit cards you use (bank or department store), lines of credit such as student loans or home repair, automobile financing and mortgages.
How to Get Your FICO Score:
Beware of fake FICO reports – you do not have to pay money to learn your credit score. Some instances where you may need to know the exact number of your FICO score include applying for a mortgage or large line of credit and investigating why your application for such loans has been rejected. Should you choose to seek relief from creditors under the Bankruptcy Code, your credit counsellors and bankruptcy lawyers will require your credit information and score. The easiest way to get your free credit report is to approach the credit bureaus mentioned at the beginning of this entry. You can apply to them individually by using the contact information below: