What are derogatory marks and how can you fix them?

Derogatory Marks Header Image

Having a few items on your credit report dragging down your score can be incredibly frustrating, especially if you have a good financial record.

A derogatory mark is a negative item on your credit report that can be fixed by removing it or building positive credit activity. Because derogatory marks can stay on your credit report typically for seven to ten years, it’s important to know how to fix them.

Derogatory marks can affect your credit score, your ability to be approved for credit and the interest rates a lender offers you. Some derogatory marks are due to poor credit activity, such as a late payment. Or it could be an error that shouldn’t be on your report at all.

Types of negative items include late payments (30, 60, and 90 days), charge-offs, collections, foreclosures, repossessions, judgments, liens, and bankruptcies. We’ll cover what each one of these means, and how they can impact your credit reports.

[embedded content]

How do derogatory marks impact my credit score?

The amount that derogatory marks lower your credit score depends on the mark’s severity and how high your credit score was before the mark. For instance, bankruptcy has a greater impact on your credit score than a missed payment or debt settlement. And, unfortunately, having a derogatory mark impacts a high credit score more than it does a low credit score.

According to CreditCards.com and CNNMoney, even a single negative on your credit could cost you over 100 points. Negative items on your credit could cost you thousands of dollars in higher interest rates, or you could be denied altogether.

negative item score decrease stats

How long a derogatory mark stays on your credit report depends on the type of mark.

How long do derogatory marks stay on my credit report?

Derogatory marks usually stay on your credit report for around seven to ten years, depending on the type. After that period passes, the mark will roll off your report and you should start seeing a change in your credit score.

Here’s how long each derogatory mark stays on your credit report:

Type of derogatory mark What is it? How long does this stay on a credit report?
Late payment Late payments are payments made 30 days or more after the payment due date. Typically, this can remain on your report for seven years from the date you made a late payment.
An account in collections or a charge-off Creditors send your account to collections or charge them off if there’s been no payment for 180 days. Typically, this can remain on your report for seven years from the date you made a late payment.
Tax lien A tax lien is when the government claims you’ve neglected or failed to pay taxes on your property or financial assets. Unpaid tax lien: Can remain on your report indefinitely.

Paid tax lien: Can remain on your report seven years from the date the lien was filed.

Civil judgment Civil judgments are a debt you owe through the court, such as if your landlord sued you over missed rent payments. Unpaid civil judgment: Can remain on your report for seven years from when the judgment was filed, but can be renewed if left unpaid.

Paid civil judgment: Can remain on your report for seven years from when the judgment was filed.

Debt settlement Debt settlement is when you and your creditor agree that you will pay less than the full amount owed. A typical time period is seven years, starting from when the debt was settled or the date of the first delinquent payment if there were missed payments.
Foreclosure Foreclosure is when you fail to pay your mortgage and you forfeit the right to the property. Typically, seven years from the foreclosure filing date.
Bankruptcy Bankruptcy is a court proceeding to discharge your debt and sell your assets. Can remain on your report for seven years for Chapter 13 bankruptcy. Chapter 7 bankruptcy can remain on your report for 10 years.
Repossession A repossession is when your assets are seized, such as a vehicle that was used as collateral. Can remain on your report for seven years from the first date of the missed payment.

Types of derogatory marks

Late payments

Late payments occur when you’ve been 30, 60, or 90 days late paying an account. Although you don’t want late payments on your credit reports, an occasional 30 or 60-day late payment isn’t too severe. But you don’t want frequent late payments and you don’t want late payments on every single account. One recent late payment on a single account can lower a score by 15 to 40 points, and missing one payment cycle for all accounts in the same month can cause a score to tank by 150 points or more.

Payments 90 days late or more start to factor more heavily into your credit score, and consecutive late payments are even more harmful to your score, as each subsequent late payment is weighted more heavily. Sometimes, creditors will report payments as late as 120 days, which can be almost as severe as charge-offs and collections. Late payments can be reported to the credit bureaus once you have been more than 30 days late on an account and these late payments can stay on your credit reports for up to seven years.

Charge offs

A charge off is when a creditor writes off your unpaid debt. Typically, this occurs when you have been 180 days late on an account. Charge offs have a severely negative impact on your credit, and like most other negative items can stay on your credit reports for seven years. When an account is charged off, your creditor can sell it to collection agencies, which is even worse news for your credit.

Creditors see a charge off as a glaring indication that you have not been responsible with your finances in the past and cannot be counted on to fulfill your financial obligations in the future. When creditors see a charge off on your credit reports, they are more likely to deny any new applications for loans or lines of credit because they see you as a financial risk. If you do qualify, this can mean higher interest rates. Current creditors can respond by raising your interest rates on your existing balances.

Tax liens

In most cases, liens are the result of unpaid taxes – whether it’s at the state or the federal level. For a federal tax lien, the IRS can place a lien against your property to cover the cost of unpaid taxes. Tax liens can make it difficult to get approved for new lines of credit or loans because the government has claimed to your property. What this means is that if you default on any other accounts, your creditors have to stand in line behind the IRS to collect.

Unpaid liens can stay indefinitely on your credit reports. Once they have been paid, however, they can stay on your reports for up to seven years. Like judgments though, the credit bureaus are strictly regulated on how they can report liens because they are also public records.

Civil judgments

Judgments are public records that are also referred to as civil claims. A judgment can be taken out against a debtor for an unpaid balance. A creditor or collection agency can file a suit in court. If the court rules in favor of the creditor, a judgment is taken out against the debtor and put on their credit reports. This, like many other negative items, has a severely negative impact, and like most other negative items can be reported for seven years.

Judgments are also another indication that a person won’t pay their debts. Lawsuits are time-consuming and costly, so they are something that creditors potentially want to avoid. When a judgment is filed though, it can impact more than credit. The judge may allow the creditor to garnish a debtor’s wages, which can heavily impact finances.

Collections

Collections are the most common types of accounts on credit reports. About one-third of Americans with credit reports have at least one collection account. Over half of these accounts are due to medical bills, but other accounts like unpaid credit cards and loans, utilities, and parking tickets can be sold to collections.

Collections arise from debts that are sold to third parties by the original creditor if a bill goes unpaid for too long. They have a severe negative impact on your credit and can stay on your reports for up to seven years. When potential creditors see collections on your credit reports, it can raise flags and cause them to think that you won’t pay your debts.

Foreclosures

A foreclosure is a legal proceeding that is initiated by a mortgage lender when a homeowner has been unable to make payments. Usually, a lender will file a foreclosure when a homeowner has been three months late or more on mortgage payments.

When a lender decides to foreclose, they begin by filing a Notice of Default with the County Recorder’s Office, which begins the legal proceedings. If a foreclosure goes through and a homeowner can’t catch up on payments, then they are evicted from their home, and the foreclosure is reported to the credit bureaus.

Bankruptcies

Bankruptcy is extremely damaging to credit. Individuals who file for bankruptcy are those who have too much debt, and not enough money to pay it. They likely have had overdue accounts for a long period of time and in some cases loss of income that prevents them from being able to pay any of their bills. Bankruptcies can also arise from huge medical debt.

Whether or not file for bankruptcy is a difficult decision, and doing so can impact your credit from seven to ten years, depending on the type of bankruptcy you file. When a bankruptcy is filed, debts are discharged and the individuals filing are released from most of their previously incurred debts (there are some exceptions). This option can give people a “clean slate” from debt, but creditors don’t like to see it on credit reports because it can imply that an individual won’t pay their debts.

Repossessions

A repossession is a loss of property on a secured loan. Secured loans are where you have collateral, like a car or a house, and the loss occurs when the lender takes back the property because of the inability to pay. Usually, when this occurs, the lender will auction off the collateral to make up for the remaining balance, although it doesn’t usually cover the remaining balance.

When there is a remaining balance, the creditor may choose to sell it off to collections. A repossession has a severe negative impact on credit because it shows a debtor’s inability to pay back a loan. Usually, a repossession follows a long line of late payments and can knock a lot of points off a credit score.

How can I improve my credit score with derogatory marks on my credit report?

If you have derogatory marks, you can improve your credit score by working to rebuild your credit. By boosting your credit score, you’re more likely to get approved for loans and credit cards.

Here’s how to improve your credit score based on the type of derogatory mark:

Derogatory mark What to do to improve your credit score
Late payments Pay off the full debt as soon as possible. If there are late fees, ask the creditor to drop the fee (they often do if it’s your first time being late).
Stay on top of your payments with other lenders to show that you’re responsible, reducing the impact of a late payment.
An account in collections or a charge-off Pay off the debt or negotiate a settlement where you pay less than the full amount owed. Making a payment doesn’t remove the negative mark from your report, but prevents you from being sued over the debt.
Tax lien Pay the taxes you owe in full as soon as possible. Continue to make timely payments with any creditors and lenders.
Civil judgment Pay off the judgment amount, ideally before it gets to court. Make other payments on time to limit the impact of the civil judgment on your credit score.
Debt settlement Pay the full settled amount to prevent your account from going to collections or being charged off.
Foreclosure Keep other credit and loans open and make timely payments to build up positive credit activity.
Bankruptcy Rebuild your credit after bankruptcy with credit cards that cater to lower credit and credit builder loans. Make timely payments to reestablish that you’re a responsible borrower.
Repossessions Continue to pay other bills on time and pay off any further debt to the creditor.

You can also remove derogatory marks if they’re inaccurate or unfairly reported. By requesting your free credit report, you can look for mistakes and inaccuracies.

For example, check to see if a missed payment was inaccurately reported or if someone else’s account got mixed up with yours. You can remove these mistakes, giving your credit score a boost. 

How do I remove derogatory marks from my credit report?

You can remove derogatory marks from your credit report by disputing inaccuracies with the credit bureaus. Here’s how:

1. Request and review your credit report

TransUnion, Equifax and Experian provide one free credit report each year. Request your credit report and review it closely for errors.

Look through both “closed” and “open” derogatory marks. Check to see if your personal information is correct and if the creditor reported payments and dates appropriately. Take note of any discrepancies.

2. Dispute derogatory marks

If you notice incorrect items, payments or dates you need to file a dispute with that credit bureau (and any bureau that lists the item on your report).

You can file a dispute through the credit bureau or have a professional assist you. It’s best to make disputes as soon as you notice them, ideally within 30 days of the incident. The credit bureaus must respond to you within 30-45 days. 

3. Follow up on the dispute

You may have to provide more information or proof to refute something on your credit report. Be sure to respond to any inquiries by the specified time. Check your credit report afterward to make sure that the error is removed.

Removing a derogatory mark from your credit report helps to repair your credit. You’ll also want to improve your credit by doing things like lowering your credit utilization rate, upping the average age of your credit and making timely payments.

If you’re unable to remove a derogatory mark from your credit report, you’ll need to wait until it rolls off of your report, usually within seven to 10 years. In the meantime, work to rebuild your credit and improve your creditworthiness.

steps to remove derogatory marks from credit report

How can I get help with derogatory marks?

You can remove derogatory marks from your credit report by yourself. However, getting help from a credit repair company can make the process easier and improve your chances of getting the negative mark removed.

Many consumers appreciate professional help as it saves time, energy and resources. Contact us for a free credit report consultation. We’ll talk about your unique situation and the ways that we can help you.

Source: lexingtonlaw.com

How Bankruptcy Works & When it’s a Good Idea

Bankruptcy offers a way out of debt by either eliminating it or repaying part of it. The decision on whether or not to file for bankruptcy is however not an easy one. You may end up losing most of your assets or none at all. At the same time some debts are not covered by bankruptcy. To help you in making the right decision let’s look at how bankruptcy works and when it’s a good idea to file for one.

Which Debts are Discharged by Bankruptcy?

Filing for BankruptcyFiling for BankruptcyBefore filing you have to decide on the type of personal bankruptcy that is unique to you financial situation. The process covers consumer debts such as credit cards, personal loans, mortgages and medical debts. Non consumer debts cannot be forgiven through personal bankruptcy. These include alimony, taxes, child support, and criminal restitutions.

It’s advisable to have a bankruptcy attorney go through your finances to ascertain which debts qualify as consumer debts and which ones do not. For example, a student loan can be either depending on how it was used.

Types of Personal Bankruptcies

In the United States a person can file for either one of the following personal bankruptcies;

Chapter 7 is also known as liquidation bankruptcy. It involves sale of assets that are not protected by bankruptcy and the distributions of the proceeds to creditors. The proceeds can cover your debts in as little as 3 months. Chapter 7 bankruptcy will be ideal if you don’t have a lot of assets that need protection.

Chapter 13 is also referred to as a debt repayment or reorganization. It’s ideal for debtors who have many or valuable assets and don’t want to lose them. Basically the debtor tables a proposal that shows how he/she plans to clear amounts owed within a given time frame. One gets the chance to clear all debts either partially or in full. You can also have others dismissed entirely.

Your attorney does a “means test” to determine which bankruptcy you are eligible for. In a nutshell, you may not be eligible for Chapter 7 if it’s evident that your income can settle debts under Chapter 13. Similarly, a Chapter 13 bankruptcy may be denied if your debts are too high in comparison to your income.

When is Bankruptcy a Good Idea

When is Bankruptcy a Good IdeaWhen is Bankruptcy a Good IdeaBeing eligible for bankruptcy doesn’t necessarily mean that you need to file for one. It could be that all you need is a little professional advice on how to manage your finances.

You also have to contend with the fact that bankruptcy stays on your credit report for seven to ten years. That said, there are some circumstances that call for bankruptcy;

#1 When debt management programs don’t work

Credit counseling is a service offered by most financial advisors and organizations. You may be advised on how to reduce personal expenses in order to free more of your income to clear debts. Other measures include renegotiating terms with credit companies or other creditors.

When debt management fails, whether it’s due to non commitment on your part or refusal by creditors, then bankruptcy could be your only way out.

#2 When you are being sued

A lawsuit filed by creditors can be tricky when you have no means of repaying and remaining liquid. The judgment could lead to sale of assets or foreclosure on your properties. When faced with such eventualities, filing for bankruptcy could be the only way for you to remain afloat. The process offers you the chance to retain some of your property that would otherwise be auctioned.

#3 When faced with overwhelming medical bills

Most financial woes result from making wrong decisions on investments and credit lines. You may however find yourself faced with bills that are not of your own making. Such include medical bills that are not covered by insurance and are beyond your financial reach. In such circumstances, filing for bankruptcy is advisable; the bill will be discharged without over-tasking your income or your family’s finances.

#4 Insolvency Due to Industry Crisis

More often than not you will find yourself contemplating mortgage as an investment. When the industry is in a boom, then you are all set to make a profit on resale in the foreseeable future; that is however not always the case. Upward adjustments on mortgage repayments can leave you deep in debt. Filing for bankruptcy could be the only way of salvaging your property from mortgage lenders.

The take away

Bankruptcy is a federal court-protected financial tool that gives you a “fresh start” from debt burden. The process becomes part of your credit report for 7-10 years. It can also lead to loss of assets hence should be done as a final result. If you are facing foreclosure, hefty medical bills or a creditor’s lawsuit then filing for bankruptcy could be your only way out. The above information gives you an overview on how to go about it.

Related Article: Life After Bankruptcy

Source: creditabsolute.com

What are derogatory marks and how can you fix them? – Lexington Law

Derogatory Marks Header Image

Having a few items on your credit report dragging down your score can be incredibly frustrating, especially if you have a good financial record.

A derogatory mark is a negative item on your credit report that can be fixed by removing it or building positive credit activity. Because derogatory marks can stay on your credit report typically for seven to ten years, it’s important to know how to fix them.

Derogatory marks can affect your credit score, your ability to be approved for credit and the interest rates a lender offers you. Some derogatory marks are due to poor credit activity, such as a late payment. Or it could be an error that shouldn’t be on your report at all.

Types of negative items include late payments (30, 60, and 90 days), charge-offs, collections, foreclosures, repossessions, judgments, liens, and bankruptcies. We’ll cover what each one of these means, and how they can impact your credit reports.

[embedded content]

How do derogatory marks impact my credit score?

The amount that derogatory marks lower your credit score depends on the mark’s severity and how high your credit score was before the mark. For instance, bankruptcy has a greater impact on your credit score than a missed payment or debt settlement. And, unfortunately, having a derogatory mark impacts a high credit score more than it does a low credit score.

According to CreditCards.com and CNNMoney, even a single negative on your credit could cost you over 100 points. Negative items on your credit could cost you thousands of dollars in higher interest rates, or you could be denied altogether.

negative item score decrease stats

How long a derogatory mark stays on your credit report depends on the type of mark.

How long do derogatory marks stay on my credit report?

Derogatory marks usually stay on your credit report for around seven to ten years, depending on the type. After that period passes, the mark will roll off your report and you should start seeing a change in your credit score.

Here’s how long each derogatory mark stays on your credit report:

Type of derogatory mark What is it? How long does this stay on a credit report?
Late payment Late payments are payments made 30 days or more after the payment due date. Typically, this can remain on your report for seven years from the date you made a late payment.
An account in collections or a charge-off Creditors send your account to collections or charge them off if there’s been no payment for 180 days. Typically, this can remain on your report for seven years from the date you made a late payment.
Tax lien A tax lien is when the government claims you’ve neglected or failed to pay taxes on your property or financial assets. Unpaid tax lien: Can remain on your report indefinitely.

Paid tax lien: Can remain on your report seven years from the date the lien was filed.

Civil judgment Civil judgments are a debt you owe through the court, such as if your landlord sued you over missed rent payments. Unpaid civil judgment: Can remain on your report for seven years from when the judgment was filed, but can be renewed if left unpaid.

Paid civil judgment: Can remain on your report for seven years from when the judgment was filed.

Debt settlement Debt settlement is when you and your creditor agree that you will pay less than the full amount owed. A typical time period is seven years, starting from when the debt was settled or the date of the first delinquent payment if there were missed payments.
Foreclosure Foreclosure is when you fail to pay your mortgage and you forfeit the right to the property. Typically, seven years from the foreclosure filing date.
Bankruptcy Bankruptcy is a court proceeding to discharge your debt and sell your assets. Can remain on your report for seven years for Chapter 13 bankruptcy. Chapter 7 bankruptcy can remain on your report for 10 years.
Repossession A repossession is when your assets are seized, such as a vehicle that was used as collateral. Can remain on your report for seven years from the first date of the missed payment.

Types of derogatory marks

Late payments

Late payments occur when you’ve been 30, 60, or 90 days late paying an account. Although you don’t want late payments on your credit reports, an occasional 30 or 60-day late payment isn’t too severe. But you don’t want frequent late payments and you don’t want late payments on every single account. One recent late payment on a single account can lower a score by 15 to 40 points, and missing one payment cycle for all accounts in the same month can cause a score to tank by 150 points or more.

Payments 90 days late or more start to factor more heavily into your credit score, and consecutive late payments are even more harmful to your score, as each subsequent late payment is weighted more heavily. Sometimes, creditors will report payments as late as 120 days, which can be almost as severe as charge-offs and collections. Late payments can be reported to the credit bureaus once you have been more than 30 days late on an account and these late payments can stay on your credit reports for up to seven years.

Charge offs

A charge off is when a creditor writes off your unpaid debt. Typically, this occurs when you have been 180 days late on an account. Charge offs have a severely negative impact on your credit, and like most other negative items can stay on your credit reports for seven years. When an account is charged off, your creditor can sell it to collection agencies, which is even worse news for your credit.

Creditors see a charge off as a glaring indication that you have not been responsible with your finances in the past and cannot be counted on to fulfill your financial obligations in the future. When creditors see a charge off on your credit reports, they are more likely to deny any new applications for loans or lines of credit because they see you as a financial risk. If you do qualify, this can mean higher interest rates. Current creditors can respond by raising your interest rates on your existing balances.

Tax liens

In most cases, liens are the result of unpaid taxes – whether it’s at the state or the federal level. For a federal tax lien, the IRS can place a lien against your property to cover the cost of unpaid taxes. Tax liens can make it difficult to get approved for new lines of credit or loans because the government has claimed to your property. What this means is that if you default on any other accounts, your creditors have to stand in line behind the IRS to collect.

Unpaid liens can stay indefinitely on your credit reports. Once they have been paid, however, they can stay on your reports for up to seven years. Like judgments though, the credit bureaus are strictly regulated on how they can report liens because they are also public records.

Civil judgments

Judgments are public records that are also referred to as civil claims. A judgment can be taken out against a debtor for an unpaid balance. A creditor or collection agency can file a suit in court. If the court rules in favor of the creditor, a judgment is taken out against the debtor and put on their credit reports. This, like many other negative items, has a severely negative impact, and like most other negative items can be reported for seven years.

Judgments are also another indication that a person won’t pay their debts. Lawsuits are time-consuming and costly, so they are something that creditors potentially want to avoid. When a judgment is filed though, it can impact more than credit. The judge may allow the creditor to garnish a debtor’s wages, which can heavily impact finances.

Collections

Collections are the most common types of accounts on credit reports. About one-third of Americans with credit reports have at least one collection account. Over half of these accounts are due to medical bills, but other accounts like unpaid credit cards and loans, utilities, and parking tickets can be sold to collections.

Collections arise from debts that are sold to third parties by the original creditor if a bill goes unpaid for too long. They have a severe negative impact on your credit and can stay on your reports for up to seven years. When potential creditors see collections on your credit reports, it can raise flags and cause them to think that you won’t pay your debts.

Foreclosures

A foreclosure is a legal proceeding that is initiated by a mortgage lender when a homeowner has been unable to make payments. Usually, a lender will file a foreclosure when a homeowner has been three months late or more on mortgage payments.

When a lender decides to foreclose, they begin by filing a Notice of Default with the County Recorder’s Office, which begins the legal proceedings. If a foreclosure goes through and a homeowner can’t catch up on payments, then they are evicted from their home, and the foreclosure is reported to the credit bureaus.

Bankruptcies

Bankruptcy is extremely damaging to credit. Individuals who file for bankruptcy are those who have too much debt, and not enough money to pay it. They likely have had overdue accounts for a long period of time and in some cases loss of income that prevents them from being able to pay any of their bills. Bankruptcies can also arise from huge medical debt.

Whether or not file for bankruptcy is a difficult decision, and doing so can impact your credit from seven to ten years, depending on the type of bankruptcy you file. When a bankruptcy is filed, debts are discharged and the individuals filing are released from most of their previously incurred debts (there are some exceptions). This option can give people a “clean slate” from debt, but creditors don’t like to see it on credit reports because it can imply that an individual won’t pay their debts.

Repossessions

A repossession is a loss of property on a secured loan. Secured loans are where you have collateral, like a car or a house, and the loss occurs when the lender takes back the property because of the inability to pay. Usually, when this occurs, the lender will auction off the collateral to make up for the remaining balance, although it doesn’t usually cover the remaining balance.

When there is a remaining balance, the creditor may choose to sell it off to collections. A repossession has a severe negative impact on credit because it shows a debtor’s inability to pay back a loan. Usually, a repossession follows a long line of late payments and can knock a lot of points off a credit score.

How can I improve my credit score with derogatory marks on my credit report?

If you have derogatory marks, you can improve your credit score by working to rebuild your credit. By boosting your credit score, you’re more likely to get approved for loans and credit cards.

Here’s how to improve your credit score based on the type of derogatory mark:

Derogatory mark What to do to improve your credit score
Late payments Pay off the full debt as soon as possible. If there are late fees, ask the creditor to drop the fee (they often do if it’s your first time being late).
Stay on top of your payments with other lenders to show that you’re responsible, reducing the impact of a late payment.
An account in collections or a charge-off Pay off the debt or negotiate a settlement where you pay less than the full amount owed. Making a payment doesn’t remove the negative mark from your report, but prevents you from being sued over the debt.
Tax lien Pay the taxes you owe in full as soon as possible. Continue to make timely payments with any creditors and lenders.
Civil judgment Pay off the judgment amount, ideally before it gets to court. Make other payments on time to limit the impact of the civil judgment on your credit score.
Debt settlement Pay the full settled amount to prevent your account from going to collections or being charged off.
Foreclosure Keep other credit and loans open and make timely payments to build up positive credit activity.
Bankruptcy Rebuild your credit after bankruptcy with credit cards that cater to lower credit and credit builder loans. Make timely payments to reestablish that you’re a responsible borrower.
Repossessions Continue to pay other bills on time and pay off any further debt to the creditor.

You can also remove derogatory marks if they’re inaccurate or unfairly reported. By requesting your free credit report, you can look for mistakes and inaccuracies.

For example, check to see if a missed payment was inaccurately reported or if someone else’s account got mixed up with yours. You can remove these mistakes, giving your credit score a boost. 

How do I remove derogatory marks from my credit report?

You can remove derogatory marks from your credit report by disputing inaccuracies with the credit bureaus. Here’s how:

1. Request and review your credit report

TransUnion, Equifax and Experian provide one free credit report each year. Request your credit report and review it closely for errors.

Look through both “closed” and “open” derogatory marks. Check to see if your personal information is correct and if the creditor reported payments and dates appropriately. Take note of any discrepancies.

2. Dispute derogatory marks

If you notice incorrect items, payments or dates you need to file a dispute with that credit bureau (and any bureau that lists the item on your report).

You can file a dispute through the credit bureau or have a professional assist you. It’s best to make disputes as soon as you notice them, ideally within 30 days of the incident. The credit bureaus must respond to you within 30-45 days. 

3. Follow up on the dispute

You may have to provide more information or proof to refute something on your credit report. Be sure to respond to any inquiries by the specified time. Check your credit report afterward to make sure that the error is removed.

Removing a derogatory mark from your credit report helps to repair your credit. You’ll also want to improve your credit by doing things like lowering your credit utilization rate, upping the average age of your credit and making timely payments.

If you’re unable to remove a derogatory mark from your credit report, you’ll need to wait until it rolls off of your report, usually within seven to 10 years. In the meantime, work to rebuild your credit and improve your creditworthiness.

steps to remove derogatory marks from credit report

How can I get help with derogatory marks?

You can remove derogatory marks from your credit report by yourself. However, getting help from a credit repair company can make the process easier and improve your chances of getting the negative mark removed.

Many consumers appreciate professional help as it saves time, energy and resources. Contact us for a free credit report consultation. We’ll talk about your unique situation and the ways that we can help you.

Source: lexingtonlaw.com

How Long Does Bankruptcy Affect Credit Scores | Average Bankruptcy Times

Bankruptcy can damage your credit score for as long 7-10 years on average depending on the type and the amount of debts before bankruptcy was filed.

The Damage To Your Credit

Bankruptcy Credit Score Drop

Nobody wants to file bankruptcy due mostly to the fact that it is very detrimental to your credit score.  At filing, the total credit rating of the filer can plunge from between 160 points and 220 points.  In laymen’s terms, that is enough of a drop to take a person’s good score and bring it down to a financially-devastating, bad credit score.

But bankruptcy is often a better option than allowing debts to continue to accumulate, which can do even greater damage to a credit rating. With debts piling up, many in this financial situation find themselves making late payments, becoming delinquent on accounts, opening new lines of credit, etc… This can cause a mudslide of credit ruin. If you’ve found yourself in this predicament then it may be time to file for bankruptcy.

And, while bankruptcy can severely damage your credit score, that doesn’t mean that bankruptcy has to be the end of a good credit rating forever.

How Long Does Bankruptcy Stay On Your Record

There are two types of bankruptcy – Chapter 13 bankruptcy and Chapter 7 Bankruptcy:

•    Chapter 7 Bankruptcy – Also known as a liquidation bankruptcy, a Chapter 7 bankruptcy will discharge most debts in a few months after filing, but the record of the bankruptcy itself usually remains active on a credit report for 10 years.

•    Chapter 13 Bankruptcy – During a chapter 13 bankruptcy many (and possibly all) debts will remain active while a 3-5 year payment plan is worked out with the collectors.  Some debts may be discharged depending on the filing individual’s income.  While a Chapter 13 usually comes off a credit report after 7 years some of these debts may remain active for longer.

Bankruptcies tend to vary greatly between individuals and situations, and while the above lengths of time that a bankruptcy remains active on a credit report are considered the general rule, there are many cases of the bankruptcy record dropping off much sooner, sometimes within only 2-3 years.

Rebuilding Your Credit

It’s never too early to start rebuilding your credit after filing for a bankruptcy.  While it is true that your credit score will most likely take a significant blow from filing for a Chapter 13 or Chapter 7, it may still be possible for you to acquire a secured credit card, auto loan, or rent-to-own loan.  This is important, because without a new line of credit you may find yourself without any credit history once the bankruptcy and debts drop off after 7-10 years.

It’s also important to make sure that all of the discharged debts have stopped reporting to the major credit bureaus after the bankruptcy so that they aren’t bringing your credit score down unnecessarily.

Credit Absolute can help.  By researching and challenging unfair items on your credit report, Credit Absolute can help to eliminate the erroneous charges that may be continuing to damage your credit after a bankruptcy.  Contact us today.

Source: creditabsolute.com

What Is A “derogatory” Mark On Your Credit Report?

A derogatory mark can have a major impact on your credit report, and consequently, your credit score. Both of these are major considerations anytime you go to apply for a loan or credit card, so it’s important to understand what’s hurting your credit.

derogatory accounts

While just about any negative item on your credit report is considered derogatory, there are several distinctions to be made for each type.

Find out the basics of derogatory marks and how each kind affects your credit. Then you can decide on the best course of action to fix your finances.

Once you get your credit score up, you’ll benefit from better interest rates and larger loan balances. Getting there starts with getting rid of derogatory items, so keep reading to find out everything you need to know.

What is a derogatory mark?

A derogatory mark refers to any negative item listed on your credit reports from Experian, Equifax, and TransUnion.

These items are reported from participating companies, such as credit card companies, lenders, mortgage servicers, and phone carriers.

Most derogatory marks stay on your credit report for seven years. However, some are more severe and can last as long as ten years from the time of the account’s last activity.

It’s crucial to understand the different types of derogatory items so you know how you can avoid adding any new ones to your credit report in the future.

Here’s a rundown of some of the most common derogatory marks. We’ll then show you exactly how to find them on your credit report so you know precisely what might be affecting your credit.

Late Payments

Perhaps the most common derogatory mark you can have on your credit report, a late payment can be reported by a creditor after it is 30 days past due.

It’s then upgraded to a higher level of severity every 30 days, so you could also see late payments that are 60, 90, or even 120 days late. Your credit score drops further for every 30 days the payment remains late.

Collections

Once an account has been charged off by a creditor, it’s written off as a loss for tax purposes and sold for pennies on the dollar to a collection agency. This usually happens after the debt is 120 days late and results in having a collection account on your report.

Bankruptcy

If you’ve entered into bankruptcy over the last several years, it will be listed on your credit report. It’s part of the trade-off for absolving a large portion of your debt. A Chapter 13 bankruptcy lasts seven years from your filing date, while a Chapter 7 bankruptcy lasts for ten years.

Tax Lien:

Tax liens occur when you fail to pay your taxes. Unfortunately, any unpaid tax lien stays on your credit report indefinitely (and can lead to other serious consequences like wage garnishment). Once the lien has been paid, it should drop off seven years after it was filed.

Foreclosure:

A foreclosure happens when you fall seriously behind in your home mortgage payments.

The exact timeline for having the bank foreclose on your house varies depending on your loan agreement. However, it typically begins between three and six months after you first started missing payments. It stays on your credit report for seven years from the filing date.

Civil Judgment:

If you’ve ever lost a civil lawsuit that resulted in you owing debt to the plaintiff, then you probably have a civil judgment on your credit report.

Judgments can remain on your credit report for seven years unless you never pay the owed debt. In that case, it could be renewed for another seven years. In some states, it could continue being renewed indefinitely.

How to find derogatory marks on your credit report

To find out which derogatory items are currently active, you’ll need to order your credit report. Different creditors may only report information to certain credit bureaus, so it’s essential to get all three. Federal law allows you to request a free copy every 12 months from each credit bureau.

Once you’ve downloaded your credit reports, scour each one carefully. Some of the credit bureaus help you find derogatory items quickly. Equifax, for example, gives a quick summary at the top of your credit report that lists “potentially negative information.”

You can use this as guidance for spotting your derogatory marks. However, it’s still a good idea to look at each page individually. Check for delinquencies under all of your accounts. Then, look at anything listed under Negative Accounts, Collections, and Public Records (that’s where you’ll find judgments, bankruptcies, and tax liens listed).

How do derogatory items affect your credit?

It’s clear that derogatory items affect your credit, but exactly how does that happen? First of all, each one lowers your credit score. Just how much your score will drop depends on a number of factors.

Less serious infractions like a 30-day late payment may not cause an enormous drop and actually become less influential over time once you’ve repaid the debt. But major negative items can cause bigger drops in your credit score, especially if you had a higher score to begin with.

Just like minor negative items, major ones won’t hurt you as much over time, especially after the first two years, but it’s still an incremental change. Although it takes just one single financial event to hurt your score, it can take years to repair your credit score after one or more derogatory items.

Limited Access to Credit

In addition to hurting your credit scores, derogatory marks limit your access to credit. Even if your score begins to rebound a few years after the item was filed, potential lenders and credit card companies still see it listed on your credit reports.

That raises a big red flag for them because they are unsure whether or not you’ll be able to meet your financial commitment to them. It causes a lot of uncertainty, which is not something lenders like, especially if you have other troubling items like large amounts of debt.

Depending on a variety of other factors in your application, you might not get approved for the loan or credit card. If you do get approved, derogatory items can affect the quality of your loan terms. This includes how much interest you’ll pay, how much money you can borrow, and how long you have to repay the funds.

Is it possible to get derogatory marks removed from your credit report?

Yes, it is possible to have them removed before they naturally age off. By law, credit reporting agencies may not list any information that is not accurate, fair, or unverified.

That’s why it’s so important to review your credit reports and make sure all the information is correct. If it’s not, you may dispute each one you disagree with.

The credit bureau is required by law to investigate your dispute and resolve the matter within 30 days.

You can dispute both closed and open derogatory marks and can do it either on your own or with the help of a professional. There are pros and cons associated with each method, so do your research to find which one better suits you.

Disputing a Derogatory Mark on Your Own

Perhaps the best reason to dispute negative items on your own is that it’s free. You’ll have to do a lot of research to find the most effective methods, but if you are living paycheck to paycheck, this is your best option.

After all, putting yourself further into debt isn’t going to do your credit score any good. But you’ll need to be careful that you don’t make any mistakes that could actually end up hurting your credit score even more.

For example, paying an old collection may actually renew the period it stays on your report, depending on your state’s statute of limitations.

You also don’t want to offer too much information in your dispute letter. It’s the credit bureau’s job to verify the accuracy and fullness of each item. Check out our resources on dispute letters to get started on the process.

Getting a Professional to Help with Disputes

If you can spare the relatively low cost of hiring a credit repair company to help with your disputes, it may be a worthwhile expense.

A quality credit repair firm (like the ones we’ve reviewed) typically has a decade or more of experience handling derogatory mark disputes. They know the law inside and out so that they can take the best possible approach at disputing each item.

Lexington Law Firm, for example, has both lawyers and paralegals on staff to help you. You can read our full review of them here. Beyond the technical expertise, a credit repair company also saves you the time and aggravation it takes to oversee disputes, especially if you have several.

Get a Free Consultation

Most firms offer a free consultation before you sign up to use their services. That call gives you a chance to go over your credit history and hear their plan to fix your credit. It’s a low-pressure way to get more information about how they can help you.

No matter which route you take, you should know that bad credit is not permanent. There are plenty of ways to fix it. If you avoid any new derogatory marks, then your score has nowhere to go but up as current marks age and cause less damage to your credit.

You can even be more proactive by strategically disputing those marks and getting them removed from your report early.

Request your credit reports today so that you can figure out the best game plan for your own credit repair process. If you’re intimidated, contact a professional to help point you in the right direction.

What Debts Qualify for Chapter 7 & 13 Bankruptcy Discharge?

One of the most common reasons to file for bankruptcy is to discharge your overwhelming debt and start your finances over on a clean slate. But just because you file for bankruptcy doesn’t mean that your responsibility for every single type of debt suddenly disappears.

bankruptcy law

Do you get out of all debts if you declare bankruptcy?

In fact, only certain types of debt qualify for discharge. Perhaps the biggest factor is what type of bankruptcy you choose, Chapter 7 or Chapter 13. Continue reading to find out exactly which debts qualify for each type of bankruptcy. We’ll also show you how to determine which route is best for you and your financial situation.

Which debts qualify for bankruptcy?

Essentially, almost any legal debts are debts that qualify for you to declare bankruptcy as long as you can prove your overall financial situation makes it impossible for you to repay them.

Financial profiles can include any combination of consumer and non-consumer debts. Bankruptcy can be a result of anything from unsuccessful investments or business decisions to poor money management, illness, loss of employment, natural disasters, or an economic downturn.

Whatever the reason, it’s your overall financial status that will determine if you qualify, not the particular debts themselves. Nevertheless, there are several different categories of debts, and which type you have can affect your eligibility for debt relief.

Additionally, certain debts can’t be discharged under Chapter 7, though they can be for Chapter 13. Understanding the debt vocabulary and the different categories of debts surrounding bankruptcy will help you understand the process better. It will allow you to make a smart and informed decision about your financial future.

What are the different types of debts?

The two main types to be aware of are secured debt and unsecured debt.

Secured Debt

Secured debt refers to debt that has collateral, or a physical asset behind it, including homes and cars.

These debts are secured by the value of the object being paid for, which provides security for the debt. If you default on the loan, the creditor can foreclose on your home or repossess your car to regain the amount that was lent.

Unsecured Debt

Unsecured debt is related to purely monetary loans or to debts that do not have physical collateral. This includes credit card debt and any type of cash advance or loan for a service or item that isn’t an asset.

Included in unsecured debt are medical bills, legal judgments, and credit accounts in collections. Student loan debt can also be unsecured, but often they are “guaranteed” by the government and have special rules that apply to them.

Consumer vs. Non-Consumer Debt

Another common distinction made between types of debt is consumer versus non-consumer. While this language is frequently used to talk about debts, it can be a little vague.

Generally speaking, consumer debt refers to unsecured loans and outstanding bills for things bought with disposable income. On the other hand, non-consumer debt would be debt related to the essential things like taxes, education, and housing. If you’re unsure which is which, your attorney can help.

Installment Debt vs. Revolving Debt

The third debt distinction is between installment debt and revolving debt. Installment debt refers to any loan where you make regular, fixed payments on.

Revolving debt concerns debt that fluctuates, such as credit card debt, payday loans, and home equity lines of credit. Rather than having a set amount that you pay for a predetermined period of time, your monthly amount changes based on how much of your credit you’ve used.

Which debts qualify for a Chapter 7 discharge?

Chapter 7 quickly discharges most of your debts (though not all of them); however, there are several qualifications you must personally meet in order to file for this type of bankruptcy.

Most importantly, you must pass a “means test“. You can’t earn over a certain amount of money, which varies depending on the state you live in and how large your family is.

You also can’t have enough disposable income to cover at least part of your monthly debt payments for five years. A Chapter 7 bankruptcy is truly designed for people facing financial hardships. If you do end up qualifying, there are some restrictions on which of your debts may be discharged.

The debts that qualify for Chapter 7 bankruptcy discharge are mostly consumer and unsecured debts, with a number of notable exceptions. Debts that are not discharged include most secured and non-consumer debts such as your house, car, and real estate.

Other debts that are not discharged include debts for certain taxes, government student loan debt, tax debts from the last four years, alimony, and child support. Criminal debts such as debts for death or personal injury caused by a D.U.I. are also not discharged under a Chapter 7 bankruptcy.

Which debts are elgible for a chapter 13 discharge?

Filing for Chapter 13 bankruptcy entails undergoing a payment period that lasts between three and five years. Depending on your income and other financial obligations, you put your remaining discretionary income towards your outstanding debt.

The payments are then distributed to the qualifying creditors. At the end of the payment period, those debts are considered settled; however, you typically can’t take on any additional debt and you must live on a fixed budget.

So what types of debts qualify? First, your unsecured debts must not exceed $383,175 and your secured debts may not exceed $1,149,525.

Qualifying debts include general unsecured claims, such as credit card debt, personal loans, medical bills, or overdue utilities. You’ll only end up paying a percentage of what you owe these types of creditors; the exact amount depends on how much you owe and how much you earn.

There are certain debts that you must pay in full, even when you file for Chapter 13 bankruptcy. Unsecured priority claims must be paid in full and include debts such as income tax debts, overdue child or spousal support, and any relevant legal fees.

Secured debts such as a mortgage don’t have to be paid in full during your repayment plan period. However, you do have to keep up with your monthly payments.

If you are behind on your mortgage and facing foreclosure, you can use the repayment period to catch up on your payments and save your house. If you don’t continue making payments, however, you still run the risk of losing your home through foreclosure.

How do I know if my debts qualify?

If you’re still having trouble determining if your debts qualify, keep in mind that you’ll be required to talk to a credit counselor who will be able to answer a lot of your questions. Also, you can always talk to your local courts. They can’t give you legal advice but they can answer a lot of questions.

An interview with a bankruptcy attorney is also very useful. Researching the process is a good way to get started exploring debt discharges. But, it’s always wise to ask a professional to look at your personal financial situation to find out what you actually qualify for.

Take advantage of your own knowledge plus advice from the experts to make an informed decision about filing for bankruptcy.

Source: crediful.com

How to File Bankruptcy: Everything You Need to Know

The mere thought of filing for bankruptcy is enough to make anyone nervous. But in some cases, it really can be the best option for your financial situation. Even though it stays as a negative item on your credit report for up to ten years, bankruptcy often relieves the burden of overwhelming amounts of debt.

United States Bankruptcy Courthouse

There are actually three different types of bankruptcy, and each one is designed to help people with specific needs. Read on to find out which type of bankruptcy you might be eligible for. We’ll also help you determine whether it really is the best option available.

What are the different types of bankruptcy?

In general, bankruptcy is the process of eliminating some or all of your debt, or in some cases, repaying it under different terms from your original agreements with your creditors.

It’s a very serious endeavor but can help alleviate your debt if you calculate that it’s unlikely to you’ll be able to repay everything throughout the coming years.

The two most common for individuals are Chapter 7 and Chapter 13. Chapter 11 is primarily used for businesses but can apply to individuals in some instances. Take a look at the other details that set them apart from each other.

Chapter 7

Chapter 7 bankruptcy is designed for individuals meeting certain income guidelines who can’t afford to repay their creditors. You must pass a means test in order to qualify. Then, instead of making payments, your personal property may be sold off to help settle your debts, including both secured and unsecured loans.

There are certain exemptions you can apply for in order to keep some things from being taken away. It all depends on which debts are delinquent. If your mortgage is headed towards foreclosure, you might only be able to delay the process through a Chapter 7 delinquency.

If you’re only delinquent on unsecured debt, like credit card debt or personal loans, then you can file for an exemption on major items like your home and car. That way they won’t be repossessed and auctioned off.

Eligible exemptions vary by state. Usually, there is a value assigned to your assets that are eligible for exemption. You may keep them as long as they are within that maximum value. For example, if your state has a $3,000 auto exemption and your car is only valued at $2,000 then you get to keep it.

Most places also allow you to subtract any outstanding loan amount to put towards the exemption. So in the situation above, if your car is valued at $6,000 but you have $3,000 left on your car loan then you’re still within the exemption limit.

Chapter 7 is the fastest option to go through, lasting just between three and six months. It’s also usually the cheapest option in terms of legal fees. However, keep in mind that you’ll likely have to pay your attorney’s fees upfront if you choose this option.

Chapter 13

A chapter 13 bankruptcy is the standard option when you make too much money to qualify for a Chapter 7 bankruptcy. The benefit is that you get to keep your property but instead repay your creditors over a three to five year period. Your repayment plan depends on a number of variables.

All administrative fees, priority debts (like back taxes, alimony, and child support), and secured debts must be paid back in full over the repayment period. These must be paid back if you want to keep the property, such as your house or car.

The amount you’ll have to repay on your unsecured debts can vary drastically. It depends on the amount of disposable income you have, the value of any nonexempt property, and the length of your repayment plan.

How long your plan lasts is actually determined by the amount of money you earn and is based on income standards for your state. For example, if you make more than the median monthly income, you must repay your debts for a full five years.

If you make less than that amount, you may be able to reduce your repayment period to as little as three years. You can enter your financial information into a Chapter 13 bankruptcy calculator for an estimate of what your monthly payments might look like in this situation.

To qualify for Chapter 13, your debts must be under predetermined maximums. For unsecured debt, your total may not surpass $1,149,525 and your secured debt may not surpass $383,175. However, unlike Chapter 7, you may include overdue mortgage payments to avoid foreclosure.

Chapter 11

Chapter 11 bankruptcy is usually associated with companies. However, it can also be an option for individuals, especially if their debt levels exceed the Chapter 13 limits. A lot of the characteristics of Chapter 11 and Chapter 13 are the same, such as saving secured property from being repossessed.

Having to pay back priority debts in full and having a higher income bracket than a Chapter 7 are also common characteristics. However, unlike a Chapter 13, you must make repayment for the entire five years with a Chapter 11. There is no option to pay for just three years, no matter where you live or how much you make.

Another reason to pick Chapter 11 is if you are a small business owner or own real estate properties. Rather than losing your business or your income properties, you get to restructure your debt and catch up on payments while still operating your business, whether it’s as a CEO or as a landlord.

One downside to be aware of with a Chapter 11 bankruptcy is that it’s usually the most expensive option. However, you can pay your legal fees over time so you don’t have to worry about spiraling back into debt.

What are the long term effects of bankruptcy?

It should come as no surprise that going through a bankruptcy causes your credit score to plummet. Depending on what else is on your report, your score could drop anywhere between 160 and 220 points.

Those effects linger. A Chapter 13 bankruptcy stays on your credit report for seven years. And a Chapter 7 remains there for as many as ten years. Their effects on your credit score do, however, begin to diminish as time goes by.

You’ll probably have trouble getting access to credit immediately following your bankruptcy. Eventually, you’ll start getting approved for loans and credit cards, but your interest rates are likely to be extremely high.

A new mortgage will probably be out of reach for at least five to seven years from the time you file for bankruptcy. Additionally, any employer performing a credit check can see all of these items on your credit report.

Government agencies can’t legally discriminate against you because of your bankruptcy, but there is no specific rule for privately-owned companies. It could be particularly damaging if the job you’re applying for deals with money or any type of financials. No matter where you work, though, you can’t be fired from a current employer because of a bankruptcy.

Should I file bankruptcy?

bankruptcy stress

There’s no correct answer to this question and it’s ultimately something you’ll need to decide on your own. However, there are a few things you can do to make sure you’re making the best decision possible. Start off by finding a licensed credit counselor to help analyze your individual situation. They’ll help you review the guidelines for each type of bankruptcy and determine if you’re even eligible.

At first glance, filing for bankruptcy may seem like a great way to settle your debts and move on with your life. Unfortunately, the process isn’t as simple as filling out a form. The effects of bankruptcy will stick with you for years.

As you begin the evaluation process of whether or not bankruptcy is right for you, there are a number of considerations to take into account. This overview will get you thinking about your situation. It will also point you in the right direction for more in-depth resources when you need them.

Is your current status temporary or permanent?

You should also look at your expected future and compare your potential earnings to your amounts of debt. If you don’t realistically see how you’ll ever pay off that debt, then bankruptcy may be a wise option. Also, understand the types of debt you owe. Tax payments, student loans, and liens on your mortgage or car will not be discharged even when you file for bankruptcy.

Once you figure out which specific options are available to you, it’s time to contact a bankruptcy attorney. You’re certainly able to represent yourself, but the process is complicated. It’s usually best to have a professional work on the case on your behalf. Just be sure to interview a few different lawyers to get multiple opinions and prices to compare.

Evaluate Your Situation

Even when your bankruptcy is underway, it’s smart to spend some time evaluating how you got there. Was it due to a one-time financial hardship, like a long bout of unemployment? If that’s the case, then you know that you have a brighter future ahead of you with the promise of work and steady income to pay your bills.

However, if you’re on the path to bankruptcy because of reckless spending, you really need to look inward and address your overspending habits. Otherwise, it becomes too easy to put yourself in the same situation a few years down the road. Use your bankruptcy as a second chance to start fresh with a clean financial slate.

Why Consider Bankruptcy?

If you’re considering bankruptcy, then you’re most likely feeling overburdened with debt and other financial obligations. You probably have a tough time paying your bills each month and may even worry how you’ll ever pay off some of your outstanding balances.

If you’ve already exhausted your other options, like working overtime and cutting back on your non-necessities, it might be time to seriously think about potentially declaring bankruptcy. Some signs that you might be ready include:

  • Increased interest rates because of late payments or bad credit
  • Using credit cards for daily purchases without paying off the balance each month
  • Already downsized things like house, car, and other assets
  • Working multiple shifts or jobs
  • Paying off debt with retirement funds
  • Wages are being garnished

If one or more of these situations apply to you, then you should probably continue your research into bankruptcy. If not, try finding other ways to improve your financial situation. For example, you could rework your budget if there are easy places to cut back on.

You can also try negotiating with your lenders, particularly if you’re experiencing just a short-term setback. Most lenders are willing to work with you. They would much rather set up a new payment plan than have the debt discharged or settled through bankruptcy.

Understanding Bankruptcy and Alternatives

If you want to file for bankruptcy it takes careful planning. Due to the long-term legal and financial consequences of bankruptcy, there are many rules that must be followed before you’re eligible.

For example, it’s necessary to show the courts you have obtained credit counseling and considered alternatives like debt settlement or debt consolidation. Bankruptcy is controlled exclusively by the federal judicial system, which strongly recommends hiring an attorney before attempting to file.

If you need help finding a bankruptcy lawyer contact the American Bar Association. They offer free legal advice and you may qualify for free legal services if you are unable to afford an attorney.

Creating a Checklist to Avoid Dismissal

Before you file for bankruptcy, there are a number of important questions you should ask yourself. There are also several key steps that you need to take. First, it’s necessary to ask yourself if you really need to file for bankruptcy.

If you don’t, you probably won’t be approved anyway. You also need to calculate income, expenses and assets, find a trustworthy attorney, and select a credit counseling program.

It’s helpful to be methodical and to use a checklist. Failure to take the right steps and find the right credit counseling could result in more wasted money and a bankruptcy dismissal where they throw out the case.

Reasons to Delay Bankruptcy

Even if bankruptcy is the best choice for you, there may be some situations where it’s smart to delay the process so you can maximize your benefits. First, if you had a high income within the last six months that no longer applies to your situation, then you might want to wait.

That’s because the court weighs your last six months of income to determine your eligibility for Chapter 7. If you had a nice monthly salary a few months ago but have been laid off since then, that means test isn’t going to reflect your current situation accurately.

Another reason to delay bankruptcy is if you are anticipating an upcoming major debt. New debt isn’t allowed to be discharged once you file for bankruptcy.

So, for example, if you’re about to have a major medical surgery, you might consider waiting until it’s over to include the medical bills as part of your bankruptcy plan. Talk to a professional to see the eligibility requirements. Luxury items charged right before bankruptcy, for example, likely won’t be included as part of your debt discharge.

Changes in Bankruptcy Law

Before getting started, it’s important to note the changes that went into effect in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). While the changes don’t affect some people applying for bankruptcy, they may affect others.

The law requires mandatory credit counseling to make sure you fully understand the consequences of declaring bankruptcy. It also created stricter eligibility requirements for Chapter 7 bankruptcies. For Chapter 13 bankruptcies, the law requires tax returns and proof of income.

An informed decision begins with understanding the law, the bankruptcy process, and what has changed. It’s important to better understand these changes before you make any final decisions.

Filing Under Chapter 7 or Chapter 13

Understanding how bankruptcy works means understanding the process and laws related to Chapters 7 and 13 of the Bankruptcy Code. Depending on the details of your situation, you might be eligible to file under Chapter 7 or Chapter 13. Which route you choose has a lot to do with your income and what assets you want to keep.

Your debts can either be resolved quickly or over a several-year period. It’s helpful to read up on in-depth frequently asked questions related to each route.

Calculating Chapter 7 Means

To have all your unsecured debts completely eliminated under Chapter 7, you must qualify under the Chapter 7 means test. Using your personal information, or a basic estimate, an online calculator can help determine this for you. When filing, you must also fill out an appropriate form in which you enter your income, expense information, and data from the Census Bureau and IRS.

If you don’t meet the income level requirements to file for Chapter 7, you can still file for Chapter 13. A Chapter 13 will settle many of your debts after you successfully complete a three to five-year repayment program.

Qualifying and Qualifying Debts

Your debts qualify for bankruptcy relief when you can prove you are unable to pay them, but a great deal depends on your situation and which chapter you are filing under. Debts can be either unsecured or secured. Secured debts include mortgages, cars, and debts related to a property you’re still paying for.

Unsecured debts include credit card debt, bills, collections, judgments, and unsecured loans. It’s important to know which debts qualify for bankruptcy. But, it’s even more important to know whether or not your situation makes you eligible for this major step. To determine this, a full financial assessment is necessary. You can start by reading more about debts that qualify.

Defaulting on a Student Loan

If you have defaulted on a student loan, there are several options open you. Bankruptcy is one of them, but if your goal is to have a student loan discharged under Chapter 7, this can very difficult.

Nevertheless, taking certain steps as soon as possible can help prevent wage garnishment. Knowing your options can help you make the best choice before matters become more difficult. Under Chapter 13, your defaulted loan can be consolidated with your other bills. This will give you a better payment plan or a temporary reprieve from making payments.

If you have a federal student loan, check out your repayment options, especially if you are facing financial hardship. Otherwise, read more to figure out how to pull yourself out of student loan default.

What Assets You Can Keep During Bankruptcy

Depending on how you file for bankruptcy, there are certain assets you can keep. Different states have different exemptions, and in certain states, you can choose between state and federal bankruptcy exemptions.

If you need to have debts discharged, are out of work, and cannot afford a repayment plan, some assets might be lost. In most cases, however, people who file for bankruptcy can keep their homes and cars and much of what they own while they repay their debts under a modified plan. It all depends on your unique circumstances and how you file.

Get a FREE Credit Evaluation Before You File Bankruptcy

A bankruptcy can affect your credit for 7 to 10 years and should be considered a last resort option when all other options have failed. Many times people file bankruptcy when it is completely unnecessary. A credit professional can help you fix your credit and deal with your creditors so you can avoid filing for bankruptcy.

Before filing bankruptcy, talk to a credit specialist:

Call 1 (800) 220-0084 for a FREE Credit Consultation with a paralegal.

Source: crediful.com

What is mortgage loan modification, and is it a good idea?

Trouble paying your mortgage? You have options

You might be wondering about mortgage loan modification if you’re:

  • Experiencing financial hardship due to the coronavirus
  • Having trouble making your monthly mortgage payments
  • Currently in mortgage forbearance but worried about what will happen when forbearance ends

The good news is, help is available. But mortgage relief options are not one-size-fits-all.

Depending on your circumstances, you might be eligible for a loan modification. Or, you might be able to pursue another avenue like a refinance. Here’s what you should know about your options.

Check your refinance eligibility (Feb 17th, 2021)


In this article (Skip to…)


What is loan modification?

Loan modification is when a lender agrees to alter the terms of a homeowner’s mortgage to help them avoid default and keep their house during times of financial hardship.

The goal of a mortgage loan modification is to reduce the borrower’s payments so they can afford their loan month-to-month. This is typically done by lowering the mortgage rate or extending the loan’s repayment term.

“A mortgage loan modification does not replace your existing home loan or your lender,” explains Karen Condor, a finance and insurance expert with Loans.org.

“However, it restructures your loan in the interest of making it more manageable when you experience difficulties in making your mortgage payments.”

How mortgage loan modification works

With a loan modification, the total principal amount you owe won’t change.

“But the lender may agree to a lower interest rate, reduced loan length, or a longer payoff period,” says Elizabeth Whitman, attorney and managing member of Whitman Legal Solutions, LLC.

Any of these strategies could help reduce your monthly mortgage payments and/or the total amount of interest you pay in the long run.

Modification can also include switching from an adjustable-rate mortgage to a fixed-rate mortgage and rolling late fees into your principal, adds Condor.

Note, loan modification is intended to make a mortgage more affordable month-to-month. But it often involves extending the loan term or adding missed payments back into the loan — which may increase the total amount of interest paid.

Refinancing into a new loan, on the other hand, often reduces the monthly payment and the total interest cost.

Loan modification vs. refinance

A refinance is typically the first plan of action for homeowners who need a lower mortgage payment.

Refinancing can replace your original loan with a new one that has a lower interest rate and/or a longer term. This may offer a permanent reduction in mortgage loan payments without negatively affecting your credit.

However, borrowers going through financial hardship might not be able to refinance.

They may have trouble qualifying for the new loan due to a reduced income, lower credit score, or unexpected debts (such as medical expenses).

In these cases, the homeowner might be eligible for a mortgage loan modification.

Loan modification is usually reserved for homeowners who are not eligible to refinance due to a financial hardship.

Mortgage modification is usually reserved for borrowers who do not qualify for a refinance and have exhausted other possible mortgage relief options.

“With a loan modification, you work with your existing bank or lender on modifying the terms of your existing mortgage,” explains David Merritt, a consumer finance litigation attorney with Bernkopf Goodman, LLP.

“If you’ve defaulted on your existing mortgage, chances are your credit has been negatively impacted to the point where a new lender would be wary to give you a new loan.”

“Typically a refinance is not possible in this situation,” says Merritt.

That means there’s no real contest between loan modification vs. refinancing. The right option for you will depend on the status of your current loan, your personal finances, and what your mortgage lender agrees to.

Check your refinance eligibility (Feb 17th, 2021)

Loan modification vs. forbearance

Forbearance is another way servicers can help borrowers during times of financial stress.

Loan forbearance is a temporary plan that pauses mortgage payments while a homeowner gets back on their feet.

For example, many homeowners who lost their jobs or had reduced income were able to request forbearance for up to a year or more during the COVID pandemic.

Unlike forbearance, mortgage loan modification is a permanent plan that changes the rate or terms of a home loan.

Forbearance and loan modification can sometimes be combined to make a more effective mortgage relief plan.

For instance, a homeowner whose income is still reduced at the end of their forbearance period may be approved for a permanent loan modification.

Or, a homeowner approved for mortgage modification may also have part of their unpaid principal forborne (put off) until the end of the repayment period.

Who is eligible for a loan modification?

To qualify for a loan modification, a borrower usually must have missed at least 3 mortgage payments and be in default.

“Sometimes, a borrower who has experienced financial setbacks, which makes a default imminent, can qualify for a loan modification. But not everyone in default under their mortgage is eligible for a loan modification,” explains Whitman.

“Borrowers whose financial setback is so severe that they will never be able to repay their mortgage won’t receive a modification, nor will borrowers who have the ability to make mortgage payments either from their income or savings.”

“Borrowers whose financial setback is so severe that they will never be able to repay their mortgage won’t receive a modification” –Elizabeth Whitman, attorney & managing member, Whitman Legal Solutions, LLC

In addition to providing a hardship letter or statement, prepare to provide proof of income, two years’ worth of tax returns, and bank/financial statements, says Condor.

Be aware, however, that your lender is not obligated to provide a loan modification.

“Once a lender has an executed contract — meaning the loan — they don’t have to change it. Many [homeowners] are denied a mortgage loan modification,” Gallagher explains.

“If the lender desires to modify the terms, per your request, then you have a starting point.”

How to request a loan modification

The process for requesting a loan modification will vary depending on who manages your loan.

The first thing you need to do is contact your loan servicer. This is the company to which you send payments, and the one you need to work with to determine your options for loan modification.

Some mortgages are managed, or “serviced” by the original lender. But most home loans are serviced by a separate company.

For instance, you may have received the loan from Wells Fargo, but now make payments to U.S. Bank.

The loan servicer is the company that takes your monthly mortgage payments; you can find yours by checking the name and contact information on your latest mortgage statement.

Many borrowers begin the process by sending a ‘hardship letter’ to their servicer or lender. A hardship letter is simply a note that describes the borrower’s financial difficulties and explains why they can’t make payments.

The lender will likely request financial information and documentation, including bank statements, pay stubs, and proof of your assets.

These documents will help your lender understand the full scope of your personal finances and determine the correct path for mortgage relief.

Mortgage loan modification programs

Your loan modification options will depend on the type of loan you have and what your lender or loan servicer agrees to.

Conventional loan modification

“Fannie Mae, Freddie Mac, and private lenders of conventional loans have their own modification programs and guidelines,” says Charles Gallagher, a real estate attorney.

In particular, Freddie Mac and Fannie Mae offer Flex Modification programs designed to decrease a qualified borrower’s mortgage payment by about 20%.

Flex Modification typically involves adjusting the interest rate, forbearing a portion of the principal balance, or extending the loan’s term to make monthly payments more affordable for the homeowner.

To be eligible for a Flex Modification program, the homeowner must have:

  • At least 3 monthly payments past due on a primary residence, second home, or investment property
  • Or; less than 3 monthly payments past due but the loan is in “imminent default,” meaning the lender has determined the loan will definitely default without modification. This is only an option for primary residences

Certain hardships can trigger “imminent default” status; for instance, the death of a primary wage earner in the household, or serious illness or disability of the borrower.

Unemployment is typically not an eligible reason for Flex Modification.

Borrowers who are unemployed are more likely to be placed in a temporary forbearance plan — which pauses payments for a set period of time, but does not permanently change the loan’s term or interest rate.

In addition, government-backed FHA, VA, and USDA loans are not eligible for Flex Modification programs.

FHA loan modification

The Federal Housing Administration offers its own loan modification options to make payments more manageable for delinquent borrowers.

Depending on your situation, FHA loan modification options may include:

  • Lowering the interest rate
  • Extending the loan term
  • Rolling unpaid principal, interest, or loan costs back into the loan’s balance
  • Re-amortizing the mortgage to help the borrower make up missed payments

In some cases where extra assistance is needed, FHA borrowers may be eligible for the FHA-Home Affordable Modification Program (FHA-HAMP).

FHA-HAMP allows the lender to defer missed mortgage payments to bring the homeowner’s loan current. It can then request that HUD (FHA’s overseer) further reduce the monthly payment by opening an interest-free subordinate loan of up to 30% of the remaining loan balance. The borrower only pays principal and interest based on 70% of the balance, and can pay back the remainder upon a sale or refinance of the home.

Deferring this extra principal amount can help make it easier for FHA borrowers to get back on track with their loans.

FHA-HAMP is typically combined with one of the loan modification methods above to lower the borrower’s monthly payment.

Eligible FHA borrowers must complete a trial repayment plan to qualify for either loan modification or the FHA-HAMP program. This involves making on-time payments in the modified amount for 3 months straight.

VA loan modification

Veterans and service members with loans backed by the Department of Veterans Affairs can ask their servicer about VA loan modification.

VA loan modification can roll missed payments back into the loan balance, as well as other delinquent homeownership costs like unpaid property taxes and homeowners insurance.

After these costs are added to the loan, the borrower and servicer work together to establish a new repayment schedule that will be manageable for the veteran.

Note, VA modification is unique in that the interest rate might actually increase. So while this plan can help veterans bring their loans current, it won’t always reduce the homeowner’s monthly payments.

“For VA loan modification, several requirements apply,” notes Condor. She explains:

  • “Your VA loan must in default
  • You must have since recovered from the temporary hardship that caused the default
  • You must be able to support the financial obligations of the modified VA loan
  • And you must not have modified your VA loan in the past three years”

Some homeowners with VA loans may qualify for a ‘Streamline Modification.’

Streamline Modification does not require as much documentation as the traditional VA modification plan, but includes two extra requirements:

  • The combined principal and interest payment must drop by at least 10%
  • The borrower must complete a 3-month trial repayment plan to prove they can make the modified payments

Talk to your loan servicer about options for your VA loan.

USDA loan modification

USDA loan modification is for homeowners whose current loans are backed by the U.S. Department of Agriculture.

A USDA loan modification allows missing mortgage payments (including principal, interest, taxes, and insurance) to be rolled back into the loan balance.

USDA modification plans also allow a term extension up to 480 months, or 40 years total, to help reduce the borrower’s payments. And the servicer can lower the borrower’s interest rate, “even below the market rate if necessary,” according to USDA.

Servicers may cover up to 30 percent of the homeowner’s unpaid principal balance using a mortgage recovery advance.

Contact your loan servicer to find out whether you’re eligible for a USDA loan modification.

Is mortgage loan modification a good idea?

A mortgage loan modification is worth pursuing for the right candidates.

“A modification can give you a second bite at the apple and get you out of the default or foreclosure process, allowing you a chance to remain in your home,” says Merritt.

But caveats apply.

“Typically, a modification will take all of your missed payments and add those to the outstanding principal balance,” Merritt says.

Say your current mortgage has an outstanding balance of $300,000. Assume you missed $50,000 in payments. In this example, your modified balance would be $350,000, which is called ‘capitalization.’

“But imagine your home’s value is only $310,000,” adds Merritt. “Here, a modification would allow you to stay in your home and avoid foreclosure, but you would owe more than your house is worth. That would be a problem if, say, two years after modification you wanted to sell your home.”

Refinancing and other alternatives to modification

Loan modification isn’t your only option, thankfully.

Possible alternatives include refinancing, forbearance, a deed-in-lieu of foreclosure, or Chapter 13 bankruptcy.

Refinancing

As mentioned above, you should first check if you’re eligible to lower your interest rate and payment with a mortgage refinance.

You’ll have to qualify for the new mortgage based on your:

  • Credit score and credit report
  • Debt-to-income ratio
  • Loan-to-value ratio (your loan balance versus the home’s value)
  • Income and employment

It may be difficult to qualify for a refinance during times of financial hardship. But before writing this strategy off, check all the loan options available.

For instance, FHA loans have lower credit score requirements and allow higher debt-to-income (DTI) ratios than conventional loans. So it may be easier to refinance into an FHA loan than a conventional one.

Streamline refinancing

Homeowners with FHA, VA, and USDA loans have an additional option in the form of Streamline Refinancing.

A Streamline Refinance typically does not require income or employment verification, or a new home appraisal. Even the credit check might be waived (though the lender will always verify you have been making mortgage payments on time).

These loans are a lot more forgiving for homeowners whose finances have taken a downturn.

Note, Streamline Refinancing is only allowed within the same loan program: FHA-to-FHA, VA-to-VA, or USDA-to-USDA.

Check your Streamline Refi eligibility (Feb 17th, 2021)

Other mortgage relief options

Refinancing typically requires a loan-to-value ratio of 97% or lower, meaning the homeowner has at least 3% equity.

However, “borrowers who have less than 3 percent equity in their homes may qualify for Fannie Mae’s HIRO program,” suggests Whitman.

This ‘High-LTV Refinance Option‘ is intended for homeowners with Fannie Mae-backed loans who owe more on their mortgage than the property is worth.

“Other choices for borrowers with little or no equity in their homes include a consensual foreclosure or a short sale, which involves selling the property for less than the outstanding mortgage amount.”

What should you do?

Whitman continues, “Any borrower who will struggle to repay their mortgage and other debts after a loan modification should consider whether it is better to dispose of their home and find a more affordable housing option.”

To better determine if a refinance or mortgage loan modification is the right strategy for you, consult with your loan servicer, an attorney, or a housing counselor.

Mortgage loan modification FAQ

What happens when you get a loan modification?

The goal of a loan modification is to help a homeowner catch up on missed mortgage payments and avoid foreclosure. If your servicer or lender agrees to a mortgage loan modification, it may result in lowering your monthly payment, extending or shortening your loan’s term, or decreasing the interest rate you pay.

How do I get a mortgage loan modification?

Contact your mortgage servicer or lender immediately to alert them of your financial hardship and ask about loan modification options available. Be ready to provide all documentation requested, which can include financial statements, pay stubs, tax returns, and more.

How long does loan modification last?

Expect your loan modification process to take anywhere from one to three months, according to finance and insurance expert Karen Condor. Once your loan modification has been approved, the changes to your interest rate and/or loan terms are permanent.

Does loan modification hurt your credit?

A mortgage loan modification under certain government programs will not affect your credit. “But other loan modifications may negatively impact your credit and show up on your credit report. However, since your mortgage usually must be in default to request a modification, your financial difficulties are probably already on your credit report,” explains attorney Elizabeth Whitman.

Can you be denied a loan modification?

Yes. A mortgage loan is a contract, and the mortgage lender isn’t obligated to agree to a loan modification. “Borrowers whose financial situation is such that they will never be able to repay their mortgage loan, as well as borrowers who do not cooperate with lender requests, are likely to be denied a modification,” says Whitman.

How much does mortgage modification cost?

While there are no closing costs for a mortgage modification, your lender may charge a processing fee. “If your modification involves extending your loan’s term, that means you’ll pay more interest over the life of your loan,” explains attorney Charles Gallagher.

Do you have to pay back a loan modification?

Paying back a loan modification will depend on the type of modification you are given. “Your lender can apply a reduced interest amount to your loan’s principal on the backend that you must later pay back,” says Condor. “With a principal deferral loan modification, your lender reduces the amount of principal paid off with each payment. But the amount of principal your lender deferred will be due when your loan matures or the home is sold.”

Understand your options

Mortgage loan modification is typically reserved for homeowners who are already delinquent on their loans.

If you’re worried about mortgage payments, get ahead of the issue by checking your eligibility for a refinance or contacting your loan servicer about options before your loan becomes delinquent.

Many homeowners are facing financial hardship right now, and many lenders and loan servicers are willing to help. But help is only available to those who ask for it.

Verify your new rate (Feb 17th, 2021)

Source: themortgagereports.com