What is the Impact of Bankruptcy On Getting Financial Aid For School?

I’ve filed for bankruptcy and now I want to go back to school. I need a loan to be able to do this. Can I still get a student loan?

Filing for bankruptcy should not affect your ability to get students loans that are federally funded.  As long as any other student loans that you may have are not in default and are being paid back, a student typically should not have any trouble getting any new federal student loans because of the bankruptcy.

Grandmother and Granddaughter Hugging

Privately backed student loans are a different story. Private student loans typically take your credit into consideration so that may make them more difficult to obtain after having filed for bankruptcy. But it is still possible to obtain private student loans after filing. They do look at your previous credit, but having a bankruptcy on your credit is not the only determining factor. The lenders will typically looks at more than just that. If a parent has gone through bankruptcy and the child is applying for a private student loan, then it is only the child’s credit history that is being looked at. One way that there might be a problem with getting this loan is if the parent is required to co-sign for it and they have filed bankruptcy before.

We understand that after filing bankruptcy you, or your children, may want to go to school to further their education. Most student loans are “need based”. This means they are based on your income each month. Filing bankruptcy obviously does not increase your income (although it may increase your disposable income). Therefore, you would still be eligible for students loans despite your bankruptcy filing.

CNN Money Lists 7 Best Credit Cards for Bad Credit

Credit CardA recent article on CNN Money’s website features the seven best credit cards for individuals with bad credit.

While bankruptcy can stay on your credit for 7-10 years from the date that you file, it is important that you begin rebuilding your credit much earlier – in fact, it is best to start doing so about a year after your bankruptcy is closed. You must choose your credit rebuilding techniques carefully, though, so that you do not end up with an outrageous interest rate or hundreds (or thousands!) of dollars in hidden fees.

The credit cards that are featured in CNN Money’s article were chosen because of their more reasonable interest rates and annual fees.

The featured credit cards include:

Orchard Bank

Capital One Secured MasterCard

Navy Federal ‘n Rewards Secured Card

Citi Secured MasterCard

Mango Prepaid MasterCard

Capital One Cash Rewards for Newcomers

Open Sky Secured Visa

Click here to read the article for more information about the cards.

 

Hidden Traps of Credit Unions When Filing Bankruptcy

Flag IconWhen it comes to banking accounts and financing a loan, credit unions are often a highly sought-after source for mortgages, vehicle loans, and bank accounts. However, what you may not know about credit unions could come back to have negative consequences against you during and after your bankruptcy.

Credit unions have become a sought-after banking source for many people because they offer competitive banking advantages without some of the hassles and fees of larger banks. Additionally, if you are a member of a credit union, you are essentially a part “owner” of the credit union. You can usually find lower interest rates at credit unions and will usually find much better customer service than a larger, traditional bank because credit unions are non-profit organizations.

There are some down sides, however, to becoming a member of a credit union. Sometimes actually becoming a member can be the most difficult part of the process. Most credit unions have certain requirements for membership – usually the requirements involve being a member of some specific organization or group (e.g. teachers, government employees, school, place of worship, organization, etc.). The membership eligibility requirements will vary depending on which credit union you wish to join, so you will need to contact the credit union for more information on their requirements.

A big trap of credit unions is cross-collateralization, which means that you have both a credit card and a vehicle or home loan with the credit union, and that your vehicle is collateral for the credit card. Cross-collateralization does not always occur, but is very common with credit unions and can have negative implications in your bankruptcy. Read more about the dangers of cross-collateralization here.

Once you do become a member, you may find that you are required to maintain a savings (or “share”) account with a minimum balance in order to also maintain a checking account. Additionally, you will find that ATM machines may be harder to find, particularly if you are traveling to a different state. In order to do your banking, you will usually have to find a credit union branch.

If you become a member of a credit union and later file bankruptcy, there are some repercussions that you will experience as a direct result of your bankruptcy filing. Regardless of whether you file Chapter 7 bankruptcy or Chapter 13 bankruptcy, your credit union will consider the bankruptcy filing a “loss” and will likely close any and all checking or savings accounts you have with the credit union. This is usually the case even if you are going to keep your mortgage loan or vehicle loan through the credit union. The only exception to this rule may be if you file Chapter 13 bankruptcy and are paying back 100% of your unsecured debt in the bankruptcy.

While credit unions are often a better option for folks who are seeking financing due to the lower interest rates, better customer service, and reduced fees, the hidden traps should be carefully reviewed if and when you run into financial hardship.

If you have further questions about filing Chapter 7 or Chapter 13 bankruptcy, contact us today for a free consultation.

I Recently Financed a Purchase, Can I File Bankruptcy?

If you recently financed a purchase, e.g., a home, car, furniture or appliance, you should definitely speak with your attorney.  Any purchase made within the 90 days prior to filing bankruptcy may be considered a fraudulent transaction.  Depending on the amount of the purchase or how the funds were obtained to finance the purchase, the Court and/or your creditors could argue there was fraudulent intent even beyond the 90 days.

Family in Front of House

There are several things the Court may consider when someone purchases an asset shortly before filing bankruptcy:

Was the purchase for a necessity? If you financed a vehicle because your previous car had a major mechanical problem and needed costly repairs, you may be able to explain why it was necessary to make the purchase shortly before filing bankruptcy.  The same may be true if an appliance, e.g. your refrigerator, stopped working.

Was the type of purchase reasonable? Did you purchase a used 2006 Honda Odyssey or did you purchase a new 2011 Hummer?  You needed a vehicle large enough for your family of five, but you must use the reasonable test.  The 2006 Honda will probably serve your family’s needs and be a bit more economical than the 2011 Hummer.

Was the financing completed with a legal process? This is best demonstrated with two examples.

If you went to your local dealership and obtained financing, you will probably have no problems with the financing following all of the legal steps.  The only question for this type of financing is whether the dealership and their finance company should have known you were insolvent, bankrupt, at the time they provided the loan to you.  This is an issue that could be played out in the bankruptcy court, but in most cases is not an issue.

If your brother-in-law gave you a $10,000 loan to purchase that used car and did not put a lien on the title of the vehicle, you and your brother-in-law will have some concerns and issues after you file bankruptcy.  Without a valid lien on the title, the loan is not considered a “secured” loan but an “unsecured” loan.  In other words, your brother-in-law cannot legally repossess the vehicle if you fail to make payments to him.  In your bankruptcy, he would be treated like a credit card or medical bill and paid nothing or only a percentage of the amount owed to him depending on the type of bankruptcy you file.  In addition, you may not be able to fully protect the equity in the vehicle.  In that situation, the bankruptcy Trustee could actually sell the car and use the proceeds to pay your creditors.  Needless to say, you or your brother-in-law will be happy with this outcome.

How was the asset purchased? If you recently purchased an asset and charged it on a credit card, you may be required to repay the debt.  If you used a credit card to purchase that $10,000 car with hopes of discharging or eliminating the debt in bankruptcy, you should think again.  Any purchase on a credit card will be reviewed, but any large purchase will most certainly be scrutinized by the credit card company and their attorney.  You can expect a lawsuit in bankruptcy, also known as an adversary proceeding, to be filed against you by the credit card company.  They will argue this debt should not be eliminated in bankruptcy and they will most likely win that argument.  Similarly, if you decided to remodel your home and purchase new stainless steel appliances on your credit card, that debt will most likely not be eliminated.  You may even find that the credit card used to purchase those items is considered a secured creditor.

Was the purchase used to protect an otherwise unprotected asset in bankruptcy? This approach is most often taken by someone who thinks he or she understands the implications of filing bankruptcy.  Again, an example is the best way to explain.  A person had $20,000 in stock that could not be protected in bankruptcy.  Rather than lose the stock, the person decided to cash out the stock and use it as a down payment on a new home.  Now the $20,000 of stock is invested in the home.  It is no longer an unprotected asset, since the person can use his homestead exemption, currently $35,000 for an individual and $70,000 for a couple in North Carolina, to protect the equity in his home.  But not so fast, the person must disclose the sale of an asset within two years of the bankruptcy filing.  Failure to disclose the sale of the stock within the two years would most likely be discovered on review of the person’s tax returns.  Needless to say, the Court would almost certainly see this as an attempt to defraud or perjury if it were not listed on the bankruptcy filing.

Not all purchases financed shortly before filing bankruptcy are problematic, some are for legitimate reasons.  However, you should expect any purchases financed within three to six months of filing bankruptcy to be scrutinized.  This timeframe could be for even longer if the assets purchased were for large dollar amounts or items not necessarily considered a necessity.  You should obviously discuss any recent purchases with your attorney.

 

How Do I Get Financing for a Vehicle After Bankruptcy?

Often, when a person files bankruptcy, they are in one of four situations regarding a vehicle:

They are behind on their payments and must surrender the car (this usually happens in a Chapter 7 bankruptcy).

They drive an older vehicle that is paid off.

They are borrowing a friend or family member’s vehicle.

They are current on their payments and are able to keep their car in a Chapter 7 bankruptcy or they are able to catch up on the payments in a Chapter 13 bankruptcy.

If you fall into the first three categories, odds are, not too long after your bankruptcy is complete, you will need to purchase a new vehicle. Unfortunately, most people do not have enough extra money to pay cash for a reliable vehicle. Instead, they must look at financing an automobile.

Male'­s hand writing in the document

If you need to finance a vehicle, you should wait until your bankruptcy has been discharged. If you can, you should then wait a few months and be sure that you pay all of your bills on time – even your utility bills. This will help you to begin rebuilding your credit.

When you are ready to look into financing, be sure to “shop around” at various dealerships to get competitive interest rates and prices. With the ability to do research online many of our clients have had a lot of success by shopping around online. You have the ability to contact a countless number of financing companies to see what opportunities they can provide for you.

 

Do not look at brand new vehicles – instead, you should be looking at two or three year old vehicles that are new to you. This will help to dramatically reduce your purchase price.

Do not be surprised if you receive an interest rate between 13-20% after your bankruptcy, simply as a result of your bankruptcy filing. One way to compensate for a higher interest rate is to look at vehicles with a lower purchase price – you must ensure that you can afford the monthly payment in your budget. For more on monthly budgeting, look at our budgeting after bankruptcy series.

The biggest thing to keep in mind when obtaining financing for a vehicle after bankruptcy is that you want a reasonable and dependable vehicle – one that you can truly afford, not necessarily the nicest, newest vehicle on the lot. That can come in time after you are able to get a lower interest rate.

What To Look For In A Credit Card After Bankruptcy

Credit Card DebtYes, credit cards are the evil culprit for many folks who have had to file bankruptcy, but credit cards are not entirely terrible.  Having a credit card helps in many ways to help build your credit, you just need to get the right one that is tailored for you and your needs.  For someone who is coming right out of a bankruptcy, all you wish to do is move forward and a credit card is one of your first steps in establishing good credit.  There are a few things that you need to look for in one when you are ready to start establishing credit.

What are the start up fees?  Are there hidden fees?

Many cards do not have an application fee, but will have annual fees that will be incurred in the future and in many cases, you must pay it when you first sign up for the card.  You will want to do thorough research on this, because in some cases, the annual fee may be low, but the hidden fees may hit you hard!

What is your interest rate?

This is a given.  Just like you would not want to buy a car with a high interest rate, you do not want a card with one either.  Once you leave a balance (i.e.: you do not pay the card off immediately after using it) your credit card company is going to charge interest.  Even if you are not using the card, they will still charge interest on the balance of the card.

Keep your balance low

Credit bureaus do not determine your score solely by whether or not you have made your payments on time.  They also look into your balances.  You do not want to have a high balance on a card because it will bring your score down.  A high balance is how much you owe on the card.  If you have a card that only has a $300 credit limit, you need to try to keep your balance owed on the card under $150.

Get a secured credit card

This is sometimes, but not always, a great way to start to establish credit.  You will have to put money “down” on the card (which is what your credit limit is based upon, for example, you put $300 down, then your credit limit would be $300.)  You will need to look into it whether these cards report to the credit bureau.  If they don’t, the card won’t help you establish payment history.

How To Get Financing For A House After Bankruptcy?

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Many people assume that because they have had poor credit and needed to file bankruptcy to get their fresh financial start that their ruined credit will prevent them from financing and purchasing a home. That is not necessarily the case but certain factors will affect the ease and timing of a new home purchase.

The Waiting Period

Family-in-Front-of-HouseBankruptcy will remain on your credit report for up to ten years but that doesn’t mean you have to wait that long to finance a new home. Through the thousands of cases that we have filed over the years we have seen numerous clients be able to purchase a new home as little as two years after filing bankruptcy. However, that doesn’t necessarily mean that you will get the best rates for your mortgage so soon after bankruptcy. Generally, you can get good rates after four years depending on whether you experienced a foreclosure, deed-in-lieu of foreclosure, or a short sale of your previous home.

The FHA requires as little as 3.5% down after two years to qualify for a loan. Some lenders may even qualify you just six months after bankruptcy but will do so with a higher interest rate and down payment. Fannie Mae and Freddie Mac, the two privately owned companies who dominate 90% of the conventional mortgage industry and are heavily regulated by HUD, have a variety of waiting periods based on various factors. If extenuating circumstances exist such as job loss, serious illness, severe injury resulting from an accident, or death, Fannie Mae and Freddie Mac’s waiting period is 3 to 7 years after foreclosure. Without extenuating circumstances, the waiting period is 5 to 7 years to obtain a conventional loan. If you want to buy after a deed-in-lieu of foreclosure (the exchange of the deed to your house for a considerably smaller sum than what it would cost the bank to go through a lengthy and expensive foreclosure process) the waiting period is 4 to 7 years or 2 to 7 years with extenuating circumstances. You must wait two years after a short sale, i.e. your lender agrees to the sale of your home for less than you owe on the note. Your new home purchase must be a principal residence, not a vacation or rental home.

Improving Your Qualification for Financing a New Home

Bankruptcy, foreclosure, deed-in-lieu of foreclosure, and short sales will have a negative impact on your credit score. Anyone who tells you otherwise isn’t telling you the whole truth. However, you can use the time between filing your bankruptcy an getting a new mortgage to rebuild your credit which, in turn, will improve your financing options.

If your credit reports shows open and overdue balances, contact all three credit reporting agencies and insist that your debt be shown as included (and therefore wiped out) in the bankruptcy. Make sure any other errors on your report are also corrected.

You might want to get a secured credit card, which gives you a credit limit equal to the amount you deposit in the bank. It may only be a $200-$500 limit but it erases any danger of running up your card to uncontrollable levels. Pay your credit card bill every month on time and often the secured credit card can be converted to an unsecured card in 12-18 months for good credit behavior.

Installment loans can help rebuild your credit too. Be prepared for very high interest rates on vehicle loans at first but they can also be refinanced within a few years of good credit behavior. Also, student loan (not discharged in bankruptcy) repayment can be another good way to restore your credit by paying them on time.

For more information on how to rebuild your credit after bankruptcy review our 6 Steps to Rebuilding Credit After Bankruptcy blog post series. This will be important to helping you reestablish your credit so that you can achieve the best financing rates possible for your new home purchase.