What rights and remedies does a creditor have in the bankruptcy case?

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What rights and remedies does a creditor have in the bankruptcy case?

A creditor has the basic right to receive a fair share of your non-exempt assets in a Chapter 7 case and to be treated fairly in a Chapter 11, 12, or 13 case. A secured creditor (i.e., one who has a lien on your property to secure the debt you owe) has a lien on the property that secures the debt.

Certain debts are not discharged in bankruptcy. A creditor holding such a debt may (and sometimes must) commence an “adversary proceeding” before a court-established deadline (usually about 60 days after the 341 meeting or first meeting of the creditors) to obtain a ruling that the debt will not be discharged.

In a “no-asset” Chapter 7 case, there are no non-exempt assets. Most unsecured debts will be discharged. Therefore, the only creditors who will actually participate in the case are the ones who hold security. They may file motions for relief from the automatic stay in order to foreclose on their loans or repossess the property securing the loans. The court generally holds a hearing on such a motion at which the debtor can contest the proposed action.

In an “asset” Chapter 7 case, there are non-exempt assets that the trustee will sell. The trustee will deduct a fee for his services and distribute the remainder among your unsecured creditors based on a priority scheme contained in the Bankruptcy Code. Creditors will be told to file proofs of claim with the court in order to participate in this eventual distribution. Properly filed claims are presumed to be accurate, which means that the creditor need not actually prove you owe a debt unless someone objects.

In cases under other chapters of the Bankruptcy Code, the debtor must look out for his/her own interests when it comes to claims by creditors. Creditors may file claims, and it will be up to the debtor to object if the claims are not accurate.

(Reviewed 11.3.08)

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What actions must a creditor take in a bankruptcy case?

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What actions must a creditor take in a bankruptcy case?

The most common participation by a creditor in a consumer bankruptcy case is to file a proof of claim and share in the liquidation of the bankruptcy estate or under a proposed plan. The bankruptcy estate is overseen by the trustee who distributes the bankruptcy estate to the creditors after deducting trustee expenses, administrative costs, and paying priority claims, such as those made by the government. In most Chapter 7 bankruptcies there are few or no assets in the bankruptcy estate.

A proof of claim that is properly filed in accordance with the rules governing bankruptcy cases is evidence of the claim’s validity and amount and is deemed allowed unless the debtor or an interested third party objects. Unsecured creditors will not receive a distribution from the bankruptcy estate unless a proper proof of claim has been filed. The proof of claim must be filed within 90 days of the date when the meeting of creditors was first set (not including any continuances).

(Reviewed 11.3.08)

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What is the Fair Debt Collection Practices Act?

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What is the Fair Debt Collection Practices Act?

The Fair Debt Collection Practices Act is federal law that regulates the activities of those who collect debts from others. Many states have adopted similar laws regulating the practices of debt collectors.

A debt collector:

May contact you by mail, in person, by telephone or by telegram during “convenient hours” (commonly between 8 AM and 9 PM);
May not contact you at work if the collector knows or has reason to know that the employer forbids employees from being contacted by debt collectors at the workplace;
May not contact you if you are represented by a lawyer (the debt collector must then contact your attorney);
May not continue to contact you after you have sent him/her a letter telling him/her not to contact you (however, s/he may contact you to tell you that some specific action is going to be taken);
May not contact you after you send him/her a letter by mail within 30 days of the first contact that you dispute all or part of the debt (however, s/he may begin collection activities again if s/he sends you proof of the debt);
Must within five days of the first contact send you a written notice stating the name of the creditor you owe money to, the amount of money you owe, what to do if you believe you do not owe the money, and the name of the original creditor if different from the current creditor (because the debt was sold or assigned to someone other than the original creditor);
May not threaten violence against you or your property, use obscene or profane language, repeatedly telephone you to annoy or harass you, make you accept collect telephone calls or pay for telegrams, or use false or misleading information in an effort to collect the “debt.”

If a debt collector violates the law, you can write a letter concerning the activity to the nearest office of the Federal Trade Commission. You can file a federal or state lawsuit against the debt collector for violation of the law, although there is usually a 1-year “statute of limitations.” That means you have to file the lawsuit within 1 year of the violation to recover the actual damages that you’ve suffered. You can also recover up to a $1,000 in an individual lawsuit or $5,000 in a class-action lawsuit for each violation, plus attorney fees and costs.

For more information on the Fair Debt Collection Practices Act visit the Federal Trade Commission’s website.

(Reviewed 11.3.08)

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I owe money to a company that filed for bankruptcy. Do I have to pay?

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I owe money to a company that filed for bankruptcy. Do I have to pay?

Yes. If you do not, you may be contacted by the Trustee, the debtor company, a third-party who has purchased your debt, or a debt collector hired by any one of the above. When a company files for bankruptcy, the filing does not eliminate your obligation to the company. It’s part of the company’s assets and will be distributed to the creditors if the company is liquidated. Do not assume you can ignore the debt.

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What is the Fair Credit Reporting Act?

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What is the Fair Credit Reporting Act?

The Fair Credit Reporting Act (FCRA) is a federal law that regulates the activities of credit reporting bureaus. Private credit reporting bureaus, such as TRW Information Services, Equifax Credit Information Services, and Trans Union Credit Information Company, maintain records of financial payment histories, public record data (such as unlawful detainer (eviction) actions taken against you, or money judgments (entered against you), along with personal identification information. Credit reporting bureaus sell the information to creditors so the creditors can make decisions about whether or not to offer you credit.

The FCRA punishes unauthorized persons who obtain credit reports, as well as employees of credit reporting bureaus who furnish credit reports to unauthorized persons. The Act also specifies responsibilities of those supplying the reporting bureaus with information.

If the information about you from a credit reporting bureau is all good, there’s no need to worry about it. You should be able to obtain credit to purchase goods and services, rent an apartment, obtain a home mortgage loan, apply for insurance, and even obtain employment.

Negative information on file with credit reporting bureaus may be used against you to deny you credit, employment, or even the ability to rent an apartment. It is a good idea to check your credit reports on an annual basis, so that you know what creditors are being told before the information is disclosed to them. Credit reporting bureaus are allowed to charge you a reasonable fee to obtain a copy of your credit report in this situation.

When credit is denied to you based upon information obtained from a credit reporting bureau, the creditor must provide you with the credit reporting bureaus’ name and address. If you request (by telephone, mail or in person) a copy of your credit report from the credit reporting bureau within thirty days of the denial, the bureau must send your credit report to you for free, including the names of creditors who have provided the information to the bureau, and the names of everyone who has received a credit report on you in the last six months, or an employment report in the last two years.

If the information provided in a credit report turns out to be inaccurate and corrections are made or the consumer inserts an explanation, the credit reporting bureau must notify the recent recipients of information (as specified by the consumer) of the corrections or explanation.

The consumer reporting bureau must delete information about events that happened more than 7 years before from a report (or 10 years in case of bankruptcies).

(Reviewed 10.31.08)

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My credit report is really messed up right now. I’ve heard about companies that can help me to fix it quickly. Does this really work?

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My credit report is really messed up right now. I’ve heard about companies that can help me to fix it quickly. Does this really work?

There are indeed legitimate businesses out there that can help you clean up your credit record. Some will contact your creditors, try to consolidate your debts, and put together a repayment plan. They may be able to advise you on bankruptcy and whether your should consider it. Many are non-profit agencies who charge small or even no fees to provide credit counseling. You can locate agencies in your area under Credit & Debt Counseling Services in your yellow page directory. For more information on legitimate credit counselors go to National Foundation of Credit Counseling website.

None of these efforts will instantly repair bad credit. Only the passage of time and care on your part can repair past damage. Credit errors will be erased from your record in 7 years and bankruptcies in 10 years. A good track record in resolving problems and paying on time can improve your credit even more quickly than that.

Unfortunately, there are companies claiming instant cures that are actually scams. The signs of scam include:

Asking you to pay for credit repair services before you’ve received any services from them;
Not telling you what your legal rights are or what you can do for yourself without paying any fees;
Advising you not to contact a credit reporting bureau directly;
Advising you to create a new credit persona by using a new Employer Identification number instead of your Social Security number.

There are firms currently operating on the Internet that are selling “credit repair kits” for $20-130. The actions recommended in some of these materials are illegal (such as concealing your identity) and will only get you into more legal trouble and make your situation worse. Be careful and check out companies you work with thoroughly.

(Reviewed 10.31.2008)

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Can I avoid a finance charge on some forms of credit?

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Can I avoid a finance charge on some forms of credit?

Yes. Many credit cards enable you to pay the entire outstanding credit amount within a certain time period without incurring any finance charge. By paying off your credit balance within the grace period (which must be at least two weeks from the receipt of the bill), you receive what amounts to an interest-free loan. The creditor still makes money by charging the seller (such as a department store or other retailer) a fee to process their credit card transactions, so the lenders collect from the retailer an amount that covers their cost of these short term loans.The credit card company may also charge you an annual fee.

Cards such as American Express and Diners Club expect you to pay off the balance each month and usually have no finance charges.

(Reviewed 10.31.2008)

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What is the difference between a fixed and a variable interest rate?

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What is the difference between a fixed and a variable interest rate?

A fixed interest rate means that the rate of the finance charge does not change throughout the duration of the extension of credit. For example, an automobile dealer may offer a loan for an automobile at 4.9% interest rate for 24 months; this means the interest rate is fixed at 4.9% for the duration of the loan (which is an installment closed-end credit loan).

Under a variable rate loan, the finance charge is determined by an index, such as the “prime rate” published nationally each quarter for short term loans charged by banks. This form of loan enables the lender to charge an interest rate that reflects current market conditions. Many credit card issuers charge a base interest rate (such as 4.9%) plus the indexed rate (such as prime rate) to assure them adequate return on the loans that they extend. This mean your payments could decrease over the course of the loan, but they might also go up suddenly.

When shopping for credit, keep in mind that there is a difference between fixed and variable rates. Some lenders now extend credit on a fixed basis, but only for a short time, after which the interest rate becomes variable. It is important for you to read the fine print of the contract to know how the interest rate will be set and how it may change.

There are advantages and disadvantages to each kind of loan. Variable rate loans often have additional options, like accelerated repayment without penalty that might be valuable to you. There is more flexibility with these loans and more competition among lenders that might keep rates down. Fixed rates, on the other hand, give you security and stability, and let you plan for the future with certainty.

To determine which is better for you, crunch the numbers, determine the amount of credit you will use over the life of the loan, and apply the applicable credit rate. You could discover that a higher initial APR will result in a lower finance charge over the duration of the loan.

It’s sometimes possible to split your loan into a variable/fixed loan hybrid. For example, you could split the loan 50/50 or 35/65. To decide if this is a good choice, you still need to crunch those numbers and find out what fees and penalties apply.

(Reviewed 10.31.2008)

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What is APR?

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What is APR?

APR is the acronym for annual percentage rate. The APR is a reference to a federally required calculation of the yearly cost of a loan that includes interest rates and other fees.

The requirement for APR disclosure was intended to help consumers compare loans. Unfortunately, the requirements for what is included in the calculation of APR are not sufficiently standardized to create a reliable comparison guide. Some fees are included, such as processing and underwriting fees, but other fees may or may not be in the APR calculation. For example, fees for title or abstract, notaries, inspections, and so on, may or may not be included. So be sure you ask what is included in an APR before you use it to compare loans or credit.

An APR on a credit card will not include late fees, over-the-limit fees, or finance charges you may incur by not paying off your balance each month. So the APR may not reflect the entire cost of the credit.

(Reviewed 10.31.2008)

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What types of consumer credit are available?

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What types of consumer credit are available?

There at least three basic types of consumer credit:

Noninstallment credit is the simplest form of credit and is usually for a very short term, such as 30 days. The buyer makes one payment at or before the end of the credit period. This kind of credit enables consumers to take possession of property immediately and pay for it within a short time. Many department stores offer noninstallment credit to their regular customers; this enables the store to make sales and get the money in the near future, thus generating better cash flow for the business than might otherwise occur.

Installment closed-end credit is another form, where only a specified amount of money is lent to the consumer, typically the total purchase price of the goods. This kind of credit is also used by department stores for the sale of large items and by auto dealers for the sale of automobiles. For example, if you purchase a sofa and chairs at a furniture store, the store might give you credit up to the full amount of the sale, which will be repaid with interest, but the store does not make further credit available to you under that agreement. The full amount of the principal and interest must be paid within a pre-determined time period. In this kind of credit the lender usually retains title to the purchased goods until all the payments have been made. If the purchaser defaults on payments, the seller can repossess the property.

Revolving open-end credit is found with most credit cards. In this kind of credit the lender extends credit for use by the consumer, with an outside limit that depends on the debtor’s credit history and ability to handle the debt repayment. The financial institution gives the debtor a credit card with a credit limit, such as $1,000, $5,000, or $10,000, and the debtor can choose how much of the available credit s/he will use at any given time. The debtor makes periodic (usually monthly) payments, and continues to use the available credit as needed, as long as each periodic payment meets pre-determined minimum amounts.

Revolving open-end credit requires active management by the debtor. The debtor can decide to pay off the entire outstanding debt when the statement is presented, pay off more than the required minimum payment (but not the entire amount), or simply make the minimum required payment. The debtor thus can determine how much credit will be available to him/her at any given time.

Other credit cards, like travel and entertainment accounts with American Express or Diners Club, may have an open ended amount of credit, but the card holder is expected to pay the balance off each time period, usually each month.

(Reviewed 10.31.2008)

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