Modesto Bankruptcy Lawyer Blog

After filing for bankruptcy, a strategically designed financial recovery plan can help you get back on the road to financial freedom. Sure, there are many companies out there promising to rebuild your credit overnight and give you a magically high credit score, but the only true (and legal) way to boost your credit score is with hard work, diligence and a smart financial plan devised with an experienced bankruptcy lawyer. Here are steps you can take to raise your FICO score:

1. If you know you're about to file for bankruptcy, pay off at least one of your low interest rate credit cards. If your creditor allows you to keep the card(s) after you file for bankruptcy, you'll have positive activity on your credit report, right from the start. Additionally, you can keep your previous line(s) of credit to help you rebuild your FICO score.

2. Contact all creditors to see if they are willing to remove their zeroed-out balances from your credit report, as opposed to leaving them notated as charge-offs. This will help you decrease the number of blemishes to raise your score faster. Target high-interest credit cards first.

3. Only spend what you have the cash to afford. Although it may seem obvious, poor choices in credit card spending likely got you in over your head in the first place. Don't make that same mistake twice. Use your credit cards to regain a positive credit history, but immediately pay them off, even before your bill arrives, to avoid slip ups. You may even be required to put cash down on new accounts as collateral.

4. Sign up as an authorized user on a third-party's credit card. This could be a friend or family member's card. Even if you don't make any purchases, the credit bureaus will reflect this as positive credit history.

5. Check your credit report often to clear up any errors immediately. You are entitled to a free credit report annually under Federal law, but you might want to invest in a program that allows you to check it more frequently for a monthly fee.

According to an article published by SmartMoney.com, declaring bankruptcy can actually improve your credit score in Modesto. Part of the reason, says the article, is that most people who file for bankruptcy don't have top-notch credit to begin with, so eliminating or reducing debt with bankruptcy can often put them in a better position than they were in pre-bankruptcy.

Also, bankruptcy changes the face of your credit report to make it more attractive to current and future creditors. Creditors use specific formulas to calculate your FICO score (short for Fair Isaac Company, the conglomerate that ranks your credit history from 300 to 850). An integral part of your FICO score is your current ranking with creditors. After you file for bankruptcy, your credit accounts will be marked with phrases such as "Included in Chapter 7 Bankruptcy," or "Included in Chapter 13 Wage Earner Plan." These terms show creditors that you've taken charge of your debt and made legal progress towards financial recovery.

Further, filing for bankruptcy can help improve your credit by putting an immediate end to creditor collections. If your accounts are marked negatively or being pursued legally for repayment, your credit score can take a big hit. When you file for bankruptcy, these actions must cease. That's why it is critical to keep track of your credit report regularly after you file for bankruptcy. You must follow up on accounts that are still marked as delinquent to improve your credit ranking. A Modesto bankruptcy attorney can help you devise a plan that will put you back on firm financial ground.

Some Modesto residents subscribe to the "broken mirror" theory of bankruptcy, believing that "you'll have seven years' bad luck" if you file for Chapter 7 or Chapter 13. However, this just isn't true. Some people's credit scores actually go up almost immediately after filing for bankruptcy, while others only need a few months to get back on their feet financially. If you're unsure of what path to take, it helps to consult a bankruptcy lawyer to devise a comprehensive plan for your financial future.

Rebuilding Credit with Chapter 7 Bankruptcy
Chapter 7 bankruptcy clears away your debts through the sale of your assets (home, car, electronics, etc.). Although it will stay on your credit report for ten years, this type of bankruptcy can help rebuild credit faster than you might think. All or most of your unsecured debts will be discharged within 90 days of filing, creating a zero balance on your credit report that is attractive to creditors. While unsecured credit may not be available to you right away, you can get secured lines of credit (requiring a deposit) to bring your FICO score into the 600 range or better within six months. The main advantage, though, is that total bankruptcy simply frees you of debt, allowing you to minimize your lifestyle to live within your means to rebuild your credit with wise financial decisions.

Rebuilding Credit with Chapter 13 Bankruptcy
With Chapter 13 bankruptcy, your Modesto attorney will work with a trustee to settle your debt for a lower amount, based on your ability to pay over the next three to five years. It stays on your credit report for seven years, but you will get to keep your home and property, giving you instant collateral for new lines of credit. Additionally, Chapter 13 inducts an "automatic stay," which is a court order for creditors to stop all collections activity and other pursuits, even eviction in some cases. This also helps to clear blemishes off of your credit report to boost your score.

Despite protests from state officials and employees, the Fremont-based Toyota manufacturing plant known as NUMMI (New United Motor Manufacturing Inc.) is moving ahead with plans to close the production facility as of April 1, 2010. In lieu of severance, the plant is offering workers large bonuses (up to $50,000) to stay on the job until the end of the month. Labor unions are discussing how these bonuses will be paid out and how pension plans will be covered for qualified workers after their employment is terminated.

The reason for the plant closure is becoming all too familiar to many Modesto area businesses: bankruptcy. NUMMI was a 50-50 venture between Toyota and General Motors Corporation, and it must shut down as a result of GM's bankruptcy filing and subsequent required liquidation of essential assets. This factory is the last remaining car production plant in the state of California. After it is closed, all major operations will be located out of state, leaving a large gap in the production industry statewide.

No matter if companies are the size of GM or simply mom-and-pop corner stores, commercial bankruptcy filings in the Modesto area have far-reaching impacts. As a result, city and state revenues decline and unemployment levels rise. According to the LA Times, this particular plant closure will essentially put 25,000 California residents out of work and cost taxpayers $2.3 billion in job-replacement costs. Local communities could stand to lose $90 million a year in revenue over the next 10 years.

If you own a Modesto business that is struggling, a bankruptcy lawyer can structure a plan for you that will help relieve your financial troubles to keep you in business. You can file for Chapter 7, 11 or 13 bankruptcy, depending on your situation. Farmers can take advantage of Chapter 12 bankruptcy to reorganize agricultural expenses.

Commercial bankruptcy rates in Modesto, CA are on the rise. In particular, the economic recession has had a marked effect on small and medium-sized businesses in this region. In June of 2009 alone, the U.S. Courts website reports that more than 16,000 businesses in the U.S. filed for commercial bankruptcy. Of those, 3% were located in the Modesto area. Considering this community is only home to 0.06% of the country's total population, this is a remarkable number compared to other areas of the country that are much larger and more densely populated with businesses.

Commercial Bankruptcy Options
Bankruptcy is often an attractive option for many business owners whose revenue simply can't match up with their expenses. Corporations, LLCs and partnerships are all eligible to file for Chapter 7 or Chapter 11 bankruptcy. Sole proprietors have the option to file for Chapter 13 bankruptcy and farmers can utilize Chapter 12 bankruptcy to reorganize debts.

Chapter 7 bankruptcy applies to commercial cases just as it does for individuals: it eliminates a business's debts by selling off assets in order to pay creditors. Chapter 11 bankruptcy helps businesses reorganize debt into a feasible payment plan out of future income or from the sale of assets. It's basically the same as Chapter 13 bankruptcy, except that it has higher debt limits. Chapter 12 bankruptcy is designed for farmers looking to reorganize debt. It allows the debtor to retain all property to pay off debts out of future income. Only a commercial bankruptcy lawyer can help you accurately file the correct paperwork needed for any type of bankruptcy in Modesto.

When you file for Chapter 13 bankruptcy in Modesto, you'll be granted an "automatic stay," which is a court injunction that stops all activity from creditors related to collections. This means that harassing phone calls, repossessions and foreclosures will all be halted immediately.

Chapter 13 bankruptcy structures your debts so that you can pay them over a three to five year period. With the help of a bankruptcy lawyer in Modesto, you can have your debts reduced and spread out over a payment plan that is feasible for you, given your level of income. Unlike Chapter 7 bankruptcy (which eliminates debts through the sale of assets), you can often keep your home with Chapter 13, which makes it more attractive to many Modesto residents.

An automatic stay takes immediate effect on most unsecured debts. It may prevent and/or halt the following: utility disconnections (for at least 20 days), home foreclosure, eviction (usually only for a short while though), collection of overpayments of public benefits such as disability or unemployment and multiple wage garnishments. There are exceptions, particularly in cases where judgments have already been made against you. For example, if a landlord already has a judgment of possession against you or alleges that you are endangering the property or are in possession of controlled substances, an automatic stay cannot prevent eviction. An automatic stay will also not stop certain IRS/tax proceedings, child support or alimony actions, criminal proceedings and loans from a pension.

A qualified bankruptcy lawyer can help you navigate the circumstances of your Chapter 13 bankruptcy filing. It's important to note that creditors have tricky ways of getting around automatic stays, so a lawyer will help protect your interests from every angle.

From September of 2008 to September of 2009, the number of people in the United States who filed for bankruptcy increased by more than 34.5%. In the state of California, however, bankruptcy filings doubled from 2008 to 2009, rising by 53.8%. Further, the monthly trends from late 2009 and early 2010 show that more people and businesses in the Modesto area are filing for Chapter 7 and Chapter 13 bankruptcy than in past years.

Bankruptcy can offer you a fresh start, wiping the slate clean of insurmountable debts. But it can also be confusing to Modesto residents who aren't familiar with Federal Bankruptcy Code (isn't that most people?). That's why it's always a smart idea to ask a lot of questions before you file.

I've heard there have been changes to bankruptcy laws in recent years. Is this true? Yes. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 made sweeping changes to qualification standards for bankruptcy, particularly Chapter 7, or total, bankruptcy. You now have to pass a "means test," which determines if you are able to pay back 25% of your unsecured debt over five years. If you are, then you have to file for Chapter 13 bankruptcy, which requires that you make payments to get rid of your debt. Other changes made by BAPCPA include increasing the waiting period to file for bankruptcy again and instituting mandatory credit counseling prior to filing for bankruptcy.

Should I file Chapter 7 or Chapter 13? The means test mentioned earlier will be the determining factor for which Chapter you file, although working with an experienced bankruptcy attorney in Modesto can also help you figure this out. Chapter 7 virtually eliminates all your debt by selling off your assets. Chapter 13 reduces what you owe so that you can make manageable payments over the next three to five years to eliminate debt.

How soon can I rebuild my credit after bankruptcy? Immediately. After you file, check your credit report to make sure your debts are charged off or included in the bankruptcy notation on your report. Within six months, even very low scores (400-500 range) can shoot up above 600 again to allow you to begin to rebuild your credit.

A significant change in the U.S. Bankruptcy Code in 2005 now requires a "means test" for people in Modesto who want to file for Chapter 7 bankruptcy. The means test is outlined in section 707(b)(2) of the Bankruptcy Code. It is designed to determine whether or not filings are valid (based on income) or if they will be dismissed or converted to another type of bankruptcy, such as Chapter 13.

The means test is based on your aggregate monthly income over the last five years, less certain deductions. It also takes into account the amount of disposable income you have versus the amount you owe in unsecured debt. If your disposable income is less than 25% of your debts over the past five years, you will likely qualify for Chapter 7 bankruptcy. Similarly, if your projected monthly disposable income is less than $100/month, you will likely pass the means test.

If approved by a judge, Chapter 7 bankruptcy erases debt entirely after certain nonexempt assets are sold by an appointed trustee to pay your debts. If your income allows you to make minimum monthly payments over three to five years, you may instead qualify for Chapter 13 bankruptcy. This type of bankruptcy allows for debt to be negotiated down and paid via an extended payment plan.

Although the Department of Justice cites that about 5% of Chapter 7 filers are converted over to Chapter 13 based on an ability to make payments on debt, the means test does totally disqualify as many as 20% of filers annually because they simply make too much money or because they've filed the paperwork incorrectly. The bankruptcy laws in the United States are detailed and extensive. That's why it's crucial to have a trusted bankruptcy lawyer on your side. A lawyer will take care of the paperwork for you and guide you on a path to financial recovery.

On February 9, 2010, California-based U.S. Senate candidate Carly Fiorina said that the state should consider declaring bankruptcy, suggesting that this action would help the government fix its budget woes. Although federal law prohibits a state from declaring bankruptcy, the former CEO of Hewlett-Packard went on to suggest that a measure comparable to bankruptcy would be a creative solution to the state's extreme financial strains in education, infrastructure, jobs, health care and other critical areas.

No matter what your political affiliations, there are thousands of Modesto residents who can relate to the state's looming debts and financial crises on an individual level. They are feeling the tension of job loss, foreclosure, credit card debt and dramatic interest rates hikes across the board. In these situations, bankruptcy becomes a plausible option for many men and women in Modesto.

Starting Over
Bankruptcy can help you reduce (Chapter 13) or eliminate (Chapter 7) most debt to wipe the slate clean. As the economy is slow to turn around, more people are considering bankruptcy as a way to repair severely damaged credit, reduce overall debt and end harassing calls, repossessions and garnishments by creditors. As a matter of fact, the U.S. Bankruptcy Court's Eastern Division of California office cites that 265 claims for Chapter 7 bankruptcy were filed in January 2010 in the Modesto area alone. If that number remains consistent over this coming year, it will be equal to nearly 2% of the city's population.

Bankruptcy can help many people get out of challenging financial situations. It can also give options to people who feel they're under a mountain of debt and collections. A Modesto bankruptcy lawyer can advise you on your options.

In 2005, the Bankruptcy Abuse Protection and Consumer Protection Act (BAPCPA) drastically changed the way that bankruptcy proceedings occur in the United States. According to the Department of Justice's U.S. Trustee Program website, one of the most significant changes in this act includes a requirement of certifying entities to provide credit counseling to people who file for Chapter 7 and Chapter 13 bankruptcy.

Under the BAPCPA's new regulations, consumers who wish to file for bankruptcy must attend credit counseling education within the six months prior to their filing date. The U.S. Trustee website provides an approved list of credit counseling centers nationwide so that you can select a nonprofit center near you. The agency you select must be on this list in order to satisfy the credit counseling requirement set forth by BAPCPA.

What is Credit Counseling?
Credit counseling is an educational meeting that can be completed in person, via the telephone and even on the Internet. During your credit counseling session, a qualified counselor will evaluate your personal finances (and those of your spouse, if filing jointly), discuss possible alternatives to bankruptcy and help you create a personal budget and debt reduction plan. Upon completion, you'll receive a certificate of proof that must be included at the time of bankruptcy filing.

After you file for bankruptcy, federal law also requires that you complete additional financial education/certification before your debts will be permanently discharged. It is important to note that your bankruptcy case can be thrown out without proper credit counseling certification. If you are unclear on the process of credit counseling or simply need help filing for Chapter 7 or Chapter 13, a bankruptcy lawyer in Modesto can help you get on the right track to put your mind at ease and get you on the road to recovery.

Personal Bankruptcy Basics: Terms You Need to Know

The details of federal bankruptcy laws can be confusing for many Modesto residents. With the help of a reputable Modesto bankruptcy attorney, though, filing for Chapter 7 or Chapter 13 bankruptcy can be an easy and quick process. To help you learn the terms you need to know before filing for bankruptcy, here's a brief list of some of the most commonly used language:

Automatic Stay: A court injunction that stops all collection activity related to debts (including lawsuits, foreclosures, garnishments and contact from creditors). Typically used in a Chapter 13 filing.

Chapters of Bankruptcy: Chapter 7 refers to liquidation, or total, bankruptcy. In this process, non-exempt assets are sold to pay off creditors. Chapter 13 bankruptcy negotiates debt down and spreads out payments over three to five years to eliminate debt over time.

Credit Counseling: A required meeting with a non-profit agency you must attend before debts are discharged. In the meeting, you will be informed of options for building and maintaining good credit.

Creditors: People or businesses to whom/which you owe money.

Current Monthly Income: The average monthly income you made six months before filing for bankruptcy.

Discharge: The release of liability (from debts).

Dischargeable Debt: Debt that can be dismissed after filing for bankruptcy (usually non-secured liabilities like credit card debt).

Joint Petition: Bankruptcy filed by a married couple.

Liquidation: The sale of assets to be used to pay creditors.

Means Test: The standard used to determine if you qualify (based on income) for Chapter 7 bankruptcy.

Secured Debt: Debt that is backed by collateral, such as a home mortgage.

Check out the U.S. Courts website for a helpful glossary of bankruptcy basics that lists definitions for legal terms as well as explanations of some of the basic procedures you can expect when you file.

Filling for bankruptcy in Modesto doesn't have to be a stressful situation. As a matter of fact, filing for bankruptcy can relieve your stress by putting an immediate end to harassing creditor calls, collection notices, repossessions and foreclosures. When you're stressed out by challenging financial difficulties, a Modesto bankruptcy lawyer can help you get a fresh start to rebuild your credit and your life.

The Effects of Stress in America
On February 8, 2010, The Associated Press published an article about this topic, entitled AP Analysis: US Economic Stress Hit a Peak in Dec. According to the piece, stress levels during two years of the recent economic recession hit a record high in December of 2009. Since that time, continued declines in mining and other regional industries have increased stress levels in western states even more than other areas of the nation. This can be partially attributed to the fact that foreclosure rates and bankruptcy filings continue to rise, even as unemployment falls in some areas.

Many Modesto residents are feeling high levels of stress caused by financial uncertainty throughout central California. The AP's Economic Stress Index found that the average U.S. statewide "stress score" was 10.2. This score is calculated based on a scale from 1 to 100, with higher scores indicating more stress. As a rule, an area is considered "stressed" with a score of 11 or more. California's rate was a whopping 16.25. With a level this high, California cities like Modesto are experiencing times of inflated anxiety without many resources being offered to offset these effects.

In her State of the Credit Counseling Sector address in 2006, the National Foundation for Credit Counseling's president and CEO Susan C. Keating predicted how a recession would affect millions of Americans: "Financial instability, unmanageable debts and bankruptcy are huge sources of stress that can tear families apart, destroy peoples' emotional and physical well being, and deprive children of a sense of security and limit their opportunities." To be true, tough economic times don't only affect individuals. They affect entire families, communities and future generations.

Bankruptcy can be the answer you're looking for in your path to eliminate the stress of insurmountable debt. An experienced bankruptcy lawyer in Modesto can help you file for bankruptcy to get you back on track. For many people, the day they file for bankruptcy is the day the slate is wiped clean and they're able to begin new, worry-free lives.

Unbearable financial burden can be caused by a number of life events, including prolonged or unexpected illness/hospitalization, loss of employment, business losses, death and divorce. Filing for bankruptcy is never desirable, but sometimes the hardships of life can simply outweigh the need for a good credit rating.

Chapter 13 bankruptcy is an alternative to Chapter 7, or total, bankruptcy. Chapter 13 allows people (who may not qualify for Chapter 7 based on higher financial income) to set up payment plans with creditors over a period of three to five years. A Modesto bankruptcy lawyer can help you file for Chapter 13 and will work with creditors to reduce your debt and create a realistic monthly payment based on your financial need. You are eligible to file Chapter 13 bankruptcy if your unsecured debts are less than $336,900 and your secured debts (those linked to property as collateral) are less than $1,010,650.

How Does It Work?
Chapter 13 consolidates your debts into one monthly payment amount. Not to be confused with private consolidation programs, the federal government regulates Chapter 13. As soon as you file, you are protected under an "automatic stay," which is a court injunction that stops all (or nearly all) collection activity against you. During this time, foreclosures, repossessions, garnishments, license suspensions and creditor harassment must cease under regulation by the federal government.

After your lawyer files your claim, you may end up owing as little as 10% of your original unsecured debt amount. This reduction in principal, combined with your new interest-free payments, reduces the overall time it will take you to pay off your debts. It is important to note, however, that Chapter 13 bankruptcy is a matter of public record, and it will show up on your credit report. It will remain there until you pay off your debts and another seven years beyond that date, so it can affect your credit rating for up to 12 years. The trustee of your account will monitor your financial activity very closely for at least three years, so it is important to work with a lawyer to devise a plan that is feasible for you and your family.

Chapter 13 is Serious Business
You must start making payments to the trustee of your claim within 30 days of filling. If you miss even one payment, your entire bankruptcy will be dismissed. This means that you will owe everything you originally owed to your creditors (including interest) as if you never even filed for bankruptcy.

Chapter 7, or "straight" bankruptcy, effectively discharges all debt from your outstanding accounts by selling any property and nonexempt assets in order to pay off creditors. Although choosing Chapter 7 bankruptcy is often a last resort for most people, hundreds of Modesto residents are filing every month. According to the U.S. Bankruptcy Court's Eastern Division of California office, 265 claims for Chapter 7 bankruptcy were filed in January 2010 in the Modesto area alone.

The Advantages of Chapter 7
Chapter 7 effectively allows you to have a fresh start. Most of your debts can usually be discharged within four to six months under Chapter 7, including credit card debt and other unsecured debts. There is no minimum amount of debt needed to file for Chapter 7 and once your debts are discharged, you are completely cleared of them for the rest of your life. Your wages and possessions purchased after discharge can no longer be garnished or possessed by creditors. Chapter 7 bankruptcy can help relieve the stress of foreclosure, harassing creditor calls and general anxiety over your financial future. Although this isn't a tangible advantage, many Modesto residents find that peace of mind is an invaluable benefit of bankruptcy filing.

The Disadvantages of Chapter 7
All your eligible assets will be liquidated under Chapter 7 bankruptcy, so you may lose your home, vehicle(s), boat, etc. If you had a co-signor for your home, that party may now be responsible for your loans if they don't take action to protect themselves. Additionally, your credit rating will be destroyed. Most loans and credit accounts will not be available to you and the ones that are will likely carry high interest rates, require collateral or secured deposits and have limited lines of credit. You can only file for Chapter 7 once every eight years. Further, some debts cannot be discharged under Chapter 7, and you will still be responsible for paying them. Non-qualified debts include domestic support orders, debt obtained by fraud, most tax debt, student loans and property liens.

Serious financial hurdles can be nearly impossible to surmount without help. A qualified, experienced Modesto bankruptcy lawyer can help you decide whether or not Chapter 7 is right for your situation. Even the tiniest mistakes can delay or even disqualify bankruptcy paperwork, so it pays to have a trusted lawyer on your side.

If you're considering filing for bankruptcy in Modesto, you're not alone. According to the Federal Government's U.S. court statistics, more than 126,000 California residents filed for consumer bankruptcy in 2008. Over 60,000 of those cases were filed in Central California alone, suggesting that the Modesto area has been the hardest hit in this period of economic downturn.

The choice to file for bankruptcy is not one that should be taken lightly. Since filing for bankruptcy can stay on your credit report for up to 10 years, it can be tough to buy a home or even obtain credit after you file. There are certain chapters of the U.S. Bankruptcy Code that are designed to get you out of debt, with Chapter 7 and 13 being the most widely used in consumer cases. You must weigh your options carefully before proceeding, and bankruptcy lawyers in Modesto can help you decide which solution is right for your individual situation.

Chapter 7
Also known as "straight" bankruptcy, Chapter 7 effectively eliminates debt, along with associated collections, lawsuits, repossessions and foreclosures due at the time of filing. Although the courts may still allow eviction, repossession and foreclosure, Chapter 7 can help you start anew by wiping out most debts. A bank-appointed trustee will sell property and other assets (when applicable) to pay creditors, and then debts are discharged.

Chapter 13
According to the U.S. Bankruptcy Court in the Eastern District of California, Chapter 13 applies only to individuals whose debts do not exceed $1,347,550 ($336,900 in unsecured debts and $1,010,650 in secured debts). Chapter 13 is also known as "reorganization" bankruptcy. A bankruptcy lawyer can negotiate for a reduced settlement of your debt based on financial need. After you file, you will have a period of three to five years to pay off the negotiated amounts.

Although consumers can represent themselves in bankruptcy cases, it is not typically wise to do so. An experienced lawyer in Modesto can better serve your needs and follow all recent changes to bankruptcy law to help you achieve the best outcome in your case.