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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What can I do if I have bad credit but I want to obtain a home loan?

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What can I do if I have bad credit but I want to obtain a home loan?

If you have bad credit, it generally cannot be avoided on your credit report and can affect whether or not you’re approved for a home loan. However, you can help to correct credit errors or misunderstandings by writing a letter to the creditor or by writing letters to be included within your credit reports. Sometimes, a letter explaining a sudden loss of a job, a lay off, or a long-term illness will change the view of the lender in reviewing your credit report. Additionally, you should provide any documentation proving your reason for failing to pay on your debts. By law credit reporting agencies are required to include letters of explanation along with any documentation proving such explanation with the credit report. As a general rule, a bad credit report usually stays on your record for a period of 7 years (10 for bankruptcies).

Lenders have extended loans to home buyers with bad credit, charging them sometimes significantly higher rates of interest. These loans are called subprime loans. Responsible, in part, for the financial crisis of 2008, subprime loans have become harder to get due to stricter federal regulations. Borrowers, unable to pay their mortgages in a depressed economy with rising interest rates, now face foreclosure.

Your best bet may be to wait a few years to buy and focus on rebuilding and improving your credit in the meantime.

(Reviewed 11.4.08)

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Can I pay some debts outside of bankruptcy?

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Can I pay some debts outside of bankruptcy?

This is a tricky question. First, some payments that you make before you file might backfire. The trustee is permitted to set aside certain prepetition payments as preferences. When this happens the trustee often sends a letter to the creditor and asks for the money. If the creditor refuses to hand it over, the trustee can sue the creditor to recover it. This money becomes part of the bankruptcy estate and can be distributed to other creditors unless you have an exemption to cover it. Second, after you file your petition, you can pay whomever you like, but it seldom makes sense unless there is a bankruptcy reason to do so. In a Chapter 13 bankruptcy, your plan may include some payments that are “outside” of the plan. This doesn’t technically mean that the payments are outside of the bankruptcy. What it means is that you will make the payments directly to the creditor instead of paying the money through the trustee. This arrangement makes sense, for example, in situations where the trustee is not timely in paying your mortgage and you want to pay it directly to the mortgage company to make sure you do not end up with late payment marks on your credit report. Another reason to pay a debt “outside” of the bankruptcy is that the debt arose after you filed. Chapter 13 bankruptcy imposes strict limits on new credit, but some debts, like medical bills, are unavoidable. These debts survive bankruptcy and you should pay them.

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Do I have to pay taxes during my bankruptcy case?

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Do I have to pay taxes during my bankruptcy case?

The tax obligations of the person filing a bankruptcy petition vary depending on whether you file a Chapter 7 bankruptcy or Chapter 13 bankruptcy.

The filing of a Chapter 7 bankruptcy petition creates a separate taxable bankruptcy estate, consisting of property that belongs to you before the filing date, and is completely separate from you as an individual taxpayer. The trustee is responsible for preparing and filing the estate’s tax returns (Form 1041) and paying its taxes. The individual debtor remains responsible for filing returns (Form 1040) and paying taxes on any income that does not belong to the estate.

The filing of a Chapter 13 bankruptcy petition does not create a separate taxable estate for federal tax purposes. You file the same federal income tax return (Form 1040) that was filed prior to the bankruptcy petition. If you run into trouble paying your post-petition taxes, look into negotiating an agreement with the tax man.

You must pay local property taxes otherwise it will probably constitute a default on your home mortgage.

(Reviewed 11.14.08)

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What are the different chapters under which an individual can file?

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What are the different chapters under which an individual can file?

There are three different chapters of the Bankruptcy Code under which an individual can file, and they are called Chapter 7, Chapter 11, and Chapter 13. A Chapter 7 case is sometimes called a “straight” bankruptcy, or a “liquidation.” In Chapter 7, a court-appointed trustee sells your non-exempt assets and distributes the proceeds amongst your creditors.

In Chapter 13, you file a plan that obligates you to pay some or all of your debts over a multiyear period. Under the new bankruptcy law, many consumer debtors will be required to file a Chapter 13 bankruptcy and commit to a 5-year repayment schedule.

Chapter 11 is primarily used by businesses that need to reorganize in order to get out from under debt, but is also theoretically available to consumer debtors. (K-Mart and WorldCom are examples of two “big” names who have filed under Chapter 11.) In chapter 11, the debtor proposes a plan for paying some or all of his debts, and his creditors get a chance to vote on whether to accept or reject that plan. In some cases, it may be possible to “cram down” a plan against a dissenting class of creditors. Chapter 11 may be the only recourse for a consumer debtor with an extremely large mortgage that causes his secured debt to exceed the limit for Chapter 13.

A special chapter – Chapter 12 – is available to family farmers and under the new bankruptcy law now covers family fishermen. It was very similar to chapter 13, but without limits on the amount of debts. The new bankruptcy law made significant changes in Chapter 12.

(Reviewed 11.14.08)

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What does it mean to avoid a lien?

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What does it mean to avoid a lien?

When you “avoid” a lien, you obtain a judicial determination that the lien no longer encumbers a piece of property.

For example, suppose that you own Blackacre, your ancestral estate. It is presently worth $300,000, subject to a first mortgage of $180,000. Suppose that someone obtains a judgment against you for $30,000 and then obtains a lien against Blackacre. They are planning to force a sale of Blackacre in order to recover their $30,000, or else they’re planning on camping out at your next refinancing or sale in order to skim $30,000 off the top of whatever money you receive after the mortgage is discharged. Now you file bankruptcy, and let’s suppose that your state law provides a $200,000 homestead exemption. The judgment lien impairs that exemption (makes it less worthwhile). Therefore, the Bankruptcy code allows you to avoid the lien, which means you will emerge from bankruptcy with Blackacre free and clear of that lien. However, the mortgage lien still exists because the Bankruptcy Code does not let you avoid voluntary or nonjudicial liens.

(Reviewed 11.14.08)

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How much of my home equity is off-limits to creditors under the new bankruptcy law?

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How much of my home equity is off-limits to creditors under the new bankruptcy law?

Most state exemption schemes, and the Bankruptcy Code exemption scheme, allow a debtor to exempt some amount of the equity (that is, the excess value over and above mortgage and other liens) in the debtor’s principal residence. As mentioned above on the question of moves, the homestead exemption for interests acquired within 1215 days of filing is limited to $136,875. There are other situations in which BAPCPA limits or eliminates a homestead exemption.
The value of a home is reduced to the extent it is attributable to a transfer made within 10 years preceding the bankruptcy filing if (a) the assets transferred would not be exempt if they had been held on the petition date, and (b) the transfer was made with the intent to hinder, delay or defraud any creditor. Since an exemption may be claimed only to the extent of an asset’s value, this provision effectively reduces the available homestead exemption when it applies.
A homestead exemption is limited to $136,875 if, within the past 5 years, the debtor committed certain kinds of securities-law violations, federal felonies, or civil RICO violations. The homestead is likewise limited to $136,875 if the debtor owes a debt arising from any criminal act, intentional tort, or willful or reckless misconduct that caused serious physical injury or death to another individual in the preceding 5 years.
Note that the foregoing provisions relative to homestead exemptions apply to cases filed after April 1, 2007.
(Reviewed 11.14.08)

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Can I use bankruptcy to protect my assets?

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Can I use bankruptcy to protect my assets?

Bankruptcy can protect your assets in several ways. In a Chapter 7 (liquidation) case, the trustee will take all your non-exempt assets for the benefit of your creditors. But sometimes you can convert nonexempt assets into exempt ones prior to filing. Exemption planning requires advice from a local attorney because rules vary between states and even between judges within a single state. If a judgment creditor (someone who has won a lawsuit against you) obtains a lien on your property, and if that lien impairs an exemption to which you’re entitled under the Bankruptcy Code, you can “avoid” that lien. Avoiding the lien wipes it out, which prevents the lien holder from seizing your property and selling it to satisfy your debt. Some states have homestead laws that protect you only from subsequent creditors. In those states, a bankruptcy filing will probably allow you to use the state homestead exemption against all your creditors, even if you file the homestead the day before the bankruptcy.

Finally, in a Chapter 13 case, your plan may allow you to pay off the arrears on your mortgage or car loan, thereby avoiding foreclosure or repossession.

(Reviewed 11.14.08)

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A lender has a mortgage lien. What is a lien and does it affect my bankruptcy case?

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A lender has a mortgage lien. What is a lien and does it affect my bankruptcy case?

A lien is a claim by a creditor against some specific item of your property. The property is called “collateral” for the loan. It guarantees payment in the event that you fail to make the required payments. A mortgage lien is a special type of lien on real estate that’s used to secure repayment of a loan for the purchase price or a home-equity loan.

Your home may be subject to more than one lien (e.g., tax liens, judgment liens, “second” and “third” [or even higher numbered] mortgages). If you fail to make payments, the creditor may enforce its rights by taking the collateral (this is called “foreclosing”), in order to get paid off. Filing Chapter 7 bankruptcy blocks a foreclosure sale temporarily, while filing under Chapter 13 blocks it if your plan provides for paying off the arrearages and keeping payments current during the life of your case (see our discussion on the effect of bankruptcy on foreclosures).

Even though your personal liability to repay a judgment or other debt will probably be wiped out (“discharged”) at the end of your bankruptcy case, liens do not automatically go away. If you do nothing about a lien, the creditor will eventually be able to foreclose and sell the collateral. You have several options to avoid losing your property:

(1) You can “avoid” judicial liens against exempt property. See the discussion of “WHAT DOES IT MEAN TO AVOID A LIEN”.

(2) You can “redeem” the collateral by paying the lender its current market value. See the topic “WHAT IS REDEMPTION.”

(3) You can “reaffirm” the debt on terms that you and the lender mutually agree upon and that are fair to you in the judgment of your attorney or the court. See the topic “WHAT IS REAFFIRMATION.”

(4) You can also avoid the hassle of a foreclosure sale by “surrendering” the collateral to the lender. See the topic “WHAT IS SURRENDER”

(Reviewed 11.14.08)

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I just purchased a waterfront condo. It was suppose to be our dream. It’s a nightmare. Within months of purchase, we found my floor joints and common wall rift with mold. My family has suffered unbearable headaches, joint pain, nosebleeds, and rashes. The seller did not disclose any mold problem. The condo association is mum. Who do I square off against?

Home Mold In New Purchase Injury Law

I just purchased a waterfront condo. It was suppose to be our dream. It’s a nightmare. Within months of purchase, we found my floor joints and common wall rift with mold. My family has suffered unbearable headaches, joint pain, nosebleeds, and rashes. The seller did not disclose any mold problem. The condo association is mum. Who do I square off against?

In areas that are most at risk for causing leaks and resulting mold, the courts have held that these areas are common areas under the property owner’s control, even when the damage occurs in your condo. If the property owner retains control, he or she is under a duty to use reasonable care to repair the mold problem.

You possibly have legal claims against the prior owner, realtor, condo association, the lender and insurance company. One suggestion is to seek a moratorium on your mortgage payments while you clean up the mold problems. However, insurers declining coverage or lagging over a claim without justification or outright refusing to pay for toxic mold remediation have been held liable for acting in bad faith.

You can expect anyone you sue to argue that the exposure to mold did not cause your health problem. This is why it is vital to discuss your case with an experienced attorney. You should do so as soon as possible, because waiting too long may bar you from suing, due to your state’s statute of limitations. If you would like to have a cost-free, no-obligation case evaluation by a knowledgeable attorney, please fill out Free Advice’s case evaluation form.

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Continue reading “I just purchased a waterfront condo. It was suppose to be our dream. It’s a nightmare. Within months of purchase, we found my floor joints and common wall rift with mold. My family has suffered unbearable headaches, joint pain, nosebleeds, and rashes. The seller did not disclose any mold problem. The condo association is mum. Who do I square off against?”