How Does Bankruptcy Impact My Credit Score?

A woman sitting a desk looks into the distance deep in thought

No one sets out with the goal of one day declaring bankruptcy. Everyone wants to be financially stable and independent, but unexpected challenges can arise and result in large amounts of debt. If you find yourself in that situation and you’re considering bankruptcy, you probably have many questions about the possible effects. One of the most common is, “how does bankruptcy affect my credit score?” Keep reading to find out.

What is a Credit Score?

Let’s begin with the basics. A credit score, or FICO® score, is a number between 300 and 850 that attempts to reflect the significant financial decisions you’ve made. Your credit score drops, for example, when you default or make a late payment on a debt. Whereas an established pattern of making payments on time will increase it. Three companies – Equifax, Experian, and TransUnion – track and assign your credit score, and it can have a significant impact on your ability to do everything from borrowing money to getting a job.

What Factors Affect Your Credit Score?

Credit card payments, mortgage payments and rent payments are three types of debt that will have the largest impact on your credit score. The rules around another common type of debt – medical debt – are currently changing, thanks to pressure from the Consumer Financial Protection Bureau. 

There has long been debate about whether or not medical debt should affect credit scores. This is because few people actually choose to take on medical debt, and those that are forced to usually have no idea how much their treatments will end up costing. If this has previously caused issues on your credit report, read up on how the overhauled rules on medical debt might affect you.

Can Bankruptcy Permanently Ruin Your Credit?

Bankruptcy is one of the single largest events that can affect your credit score, and the immediate impact of bankruptcy is substantial. A person with previously solid credit (700+) will see their credit score drop by about 200 points. A below-average to average credit score won’t drop as much. That’s one important factor to keep in mind. If your credit score is good, you will be penalized more heavily than if your credit score is average or worse.

The good news is that the effect is not permanent. In fact, you can start rebuilding credit immediately after bankruptcy is filed. The process takes some time, but financial institutions offer products like secured credit cards and credit-builder loans that can help. Just be sure to make your payments regularly and on time and practice smart spending habits. Financial institutions will look favorably on your efforts to rebuild credit even if you have a bankruptcy on your record.

The effects of bankruptcy can be different, depending on the type of bankruptcy. These are the three most common types of bankruptcy for individuals in the US.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as “liquidation,” is the most common type of bankruptcy in the United States. A liquidation plan is created, the individual’s nonexempt property gets sold and the proceeds are used to service existing debts. A judge then orders all remaining debts to be discharged. Chapter 7 Bankruptcy can affect your credit score for up to ten years.

Chapter 11 Bankruptcy

Chapter 11 bankruptcy is mostly filed by businesses because under federal law, this is the only bankruptcy option allowed for LLCs, corporations and partnerships. While individuals may file for Chatper 11 bankruptcy as well, it’s less common because Chapter 11 is typically more costly, complex and risky than filing for Chapter 7 or 13. Chapter 11 Bankruptcy can also affect your credit score for up to ten years.

Chapter 13 Bankruptcy

Also called “reorganization,” Chapter 13 bankruptcy allows individuals to repay creditors over a period of three to five years. The benefit is additional time to pay off debts and the chance to renegotiate settlements which typically means the individual has to pay far less than the original debt. Chapter 13 Bankruptcy can affect your credit score for up to seven years.

Is Bankruptcy Right For You?

Imagine Person A and Person B both have $30,000 in debt and are considering bankruptcy. 

The difference is that Person A has a credit score of 750 whereas Person B has a credit score of 550. Both will have $30,000 debt discharged if they declare Chapter 7 Bankruptcy, but the cost for Person A is significantly higher than for Person B. 

That’s because Person A will lose about 200 points to their credit score; Person B will only lose about 100 points. Person A’s new credit score will be ~550; Person B’s new score will be ~450.

Obviously, it’s more worth it for Person B to declare bankruptcy, but it might also be worth it for Person A too. It’s up to you to assess your circumstances and decide if bankruptcy is the tool that will best position you to move forward financially. 

But you don’t have to make the decision alone. In fact, you shouldn’t make this decision alone. Gather as much information as you can, then consult an experienced bankruptcy attorney so you can be sure you understand all of the ramifications of your decision.

There’s no shame in declaring bankruptcy, and it’s not the end of the world for your personal finances. It’s a powerful tool you have at your disposal in the event that your debt burden becomes unmanageable, and if you commit to rebuilding your credit afterward, it can be one of the best financial decisions you’ll ever make.

How Much Do Bankruptcy Lawyers Charge?

Bankruptcy attorney discussing a case with clients in office

If debt has become an insurmountable problem for you, then filing for bankruptcy may be the best way to get back on your feet. However, the idea of spending money on an attorney may not sound very appealing if you’re already struggling financially. Knowing your options will help you make an informed decision so you can determine the best course of action for your situation. To help you get started, here’s a breakdown of how much bankruptcy lawyers charge and what you can expect when working with one.

How Much Do Bankruptcy Lawyers Cost?

While all experienced attorneys are expensive, a bankruptcy lawyer will likely be the least expensive attorney you will ever hire. Chapter 7 attorney fees typically run between $1,000 and $2,000. Meanwhile, Chapter 13 fees generally range from $3,000 to $6,000.

If you aren’t sure which type of bankruptcy you should choose, our skilled attorneys are here to help! With 40 years of experience helping individuals and businesses throughout the state of Oregon, we know the ins and outs of bankruptcy laws and can seamlessly guide you through the process.

Can I File Bankruptcy Without a Lawyer?

Though bankruptcy lawyers are less expensive than other attorneys, the fees can still feel overwhelming. For that reason, many people wonder if they even need the help of an attorney.

While it is possible to file for bankruptcy without a lawyer, doing so could become complicated and expensive. Filing for bankruptcy is an intensive process that can easily become overwhelming, and mistakes along the way could cost you. An experienced debt relief attorney will relieve stress by making the process simple, all while ensuring you get the best outcomes possible.

Will I Have to Pay a Bankruptcy Lawyer Up Front?

Depending on which chapter of bankruptcy you are filing for, you may not need to pay all of your attorney fees up front. While Chapter 7 typically requires you to pay your fees in full before filing, Chapter 13 often allows you to pay in installments as a part of your repayment plan.

Don’t let fees hold you back from getting the help you need. At OlsenDaines, we offer free legal consultations where we can examine your situation and discuss payment options before charging you anything. Our firm has also made a commitment to value-based pricing so we can remain as affordable as possible; in most cases, we can be retained for as little as just $200.

How Can I Pay for a Bankruptcy Lawyer?

Many people wonder how they are supposed to afford a bankruptcy lawyer if they are already struggling to pay creditors. If you’re struggling to come up with the money for attorney fees, don’t panic – there may be some options available.

Since everybody’s situation is different, we strongly recommend starting with a free legal consultation. At OlsenDaines, one of our experienced attorneys will examine your case and discuss how we can help you afford our services.

Affordable Bankruptcy Attorneys in Oregon

The attorneys here at OlsenDaines decided to become bankruptcy lawyers for a very particular reason; we sincerely want to help our neighbors get back on track financially. It is gratifying to help our community thrive, which is why we strive to keep our services as affordable as possible by offering free consultations and value-based pricing. If you are looking for experienced and affordable bankruptcy attorneys, we have you covered. Just contact us today to schedule your free initial case evaluation.

Do You Still Owe Taxes if You File for Bankruptcy?

Bankruptcy petition in Oregon - OlsenDaines Debt Relief Lawyers

Filing for bankruptcy is one of the most effective ways to eliminate debt, save your home, and rebuild your financial security. It can also help you sleep easier at night knowing that you won’t have to worry about repossession or mounting bills. However, if you’re considering bankruptcy, it’s important to know what it does and does not cover – and that includes taxes.

How Do Taxes Work After Bankruptcy?

Many people overlook their tax situation when filing for bankruptcy, but it’s crucial to know what to expect before moving forward with your case. Your tax requirements will look different depending on which type of bankruptcy you are filing for. Here is a brief overview of how taxes work after filing for the two most common types of bankruptcy:

Chapter 7

This chapter of bankruptcy is meant to help those with lower income and fewer assets, and individuals must pass a “means test” in order to qualify. If granted chapter 7 bankruptcy, individuals will be assigned a trustee that will be responsible for reviewing your petition and seizing any nonexempt assets that can be sold to benefit your creditors.

Taxes are still a requirement even if you are granted chapter 7 bankruptcy. If you are unable to pay your taxes and accrue new debt, it can have a negative impact on your case and may even result in your case being dismissed. However, if you are expecting a tax refund but are granted chapter 7 bankruptcy, then you may need to turn the funds over to your trustee who will use them to pay your creditors.

Chapter 13

This chapter of bankruptcy is meant to help those with higher income and more assets, and it is often considered a “reorganization” of debt. Individuals who are granted chapter 13 bankruptcy will need to establish a monthly payment plan with their creditors to repay a portion of their debts.

Taxes are also still required if you are granted chapter 13 bankruptcy. If you owe more than you can pay, you may be able to set up a payment plan with the IRS lasting between three and five years. Meanwhile, if you receive tax refunds while in Chapter 13 you’ll usually be able to keep these refunds for your own benefit.

Can Bankruptcy Discharge Tax Debt?

Tax debt is considered “unsecured debt”, which means that it generally cannot be discharged even if you are granted bankruptcy. That said, if your tax debt meets a few specific criteria, you may be able to discharge it when filing for chapter 7 bankruptcy. Your debt may be considered for discharge if it meets these requirements:

  • The tax return filing was due three or more years ago.
  • The tax return filing was two or more years ago.
  • The tax assessment is at least 240 days old.
  • The tax return was not fraudulent.
  • The taxpayer did not attempt tax evasion.

Your Local Bankruptcy Attorneys

Filing for bankruptcy can be overwhelming, but you don’t have to navigate it all alone. The experienced bankruptcy attorneys at OlsenDaines are prepared to help get you through the process as quickly and easily as possible while answering all of your questions. We have proudly served Oregon and Washington residents for over 40 years, and we are ready to use our expertise to help you relieve your debt. To get started, schedule your free and no-obligation legal consultation with one of our attorneys today!

Bankruptcy and HOA: What You Need to Know

What you need to know about filing for bankruptcy with an HOA - OlsenDaines bankruptcy attorneys in Oregon

If you live on a property with a homeowner’s association and are overwhelmed with late dues or fees, then you may be wondering if bankruptcy is a viable way to eliminate these debts. While this may seem like a straightforward question, there are several factors that can impact whether or not your HOA debts can be discharged through bankruptcy. To help give you an idea of what your situation might look like, the experts at OlsenDaines have put together a guide on what you need to know about bankruptcy and HOA.

Can I Discharge My HOA Debt Through Bankruptcy?

Your specific circumstances will impact whether or not you can dismiss HOA debt by filing for bankruptcy. To determine if your HOA fees can be discharged, begin by asking yourself these questions:

Which chapter of bankruptcy are you filing for? The two most common chapters of bankruptcy are Chapter 7 and Chapter 13. While Chapter 7 bankruptcy is intended for lower-income individuals with fewer assets, Chapter 13 is geared toward those with more assets and disposable income. Knowing which chapter you qualify for will give you a better understanding of what your debt relief options are.

Do you plan to keep the property? With both chapters of bankruptcy, you should be able to wipe out past HOA dues by forfeiting the property. However, if you plan to keep your condo or home, you will still be responsible for paying your HOA debts.

With Chapter 7 bankruptcy, you should treat the HOA like a bank holding a mortgage and plan to make payments both before and after you file. It’s important to know that the HOA could still foreclose on your home if they have a lien on your property, even if your debts are discharged.

Meanwhile, if you are filing for Chapter 13 bankruptcy and plan to keep the property, your repayment options may look a little different. Since this chapter allows you to reconfigure your debts into a payment plan, your past HOA fees should be included in your monthly installment.

Can an HOA Foreclose on My Property After Bankruptcy?

Even if you are granted bankruptcy, an HOA may be able to foreclose on your property depending on your specific situation. Here are some instances where an HOA can foreclose on your property after bankruptcy:

  • Your foreclosure has already taken place: Bankruptcy cannot undo a foreclosure that has already taken place. So, if the HOA has already foreclosed on your property and the home is no longer in your name, the outcome of your bankruptcy petition will not be able to reverse the process.
  • The HOA filed a lien against your property: Once an HOA files a lien against your property, they may begin the foreclosure process. Though you are granted an “automatic stay” while filing for bankruptcy – meaning that the HOA cannot move forward with the foreclosure process during your petition – they may be able to resume the process once you are granted bankruptcy. Bankruptcy cannot get rid of a lien filed against you even if your debts are discharged, so your property may still be foreclosed on.
  • You accrue more fees after bankruptcy: Bankruptcy will only discharge debts accrued prior to your petition, so you will be responsible for any fees due after you are granted bankruptcy. This is true even if you are forfeiting the property; you will have to pay any fees that accumulate between the time you are granted bankruptcy and the sale of your home. To avoid accruing more fees and debt, it is best to wait until the property is sold before filing for bankruptcy if you are planning to surrender the home.

Your Local Bankruptcy Experts

Here at OlsenDaines, we understand how stressful and complicated it can be to file for bankruptcy. That is why our experienced attorneys are always here to help. We strive to make the process as fast and easy as possible while ensuring that you are getting the most out of your petition. With over 40 years of experience serving people throughout Oregon, we are very familiar with local bankruptcy laws and are prepared to help you regain control over your finances so you can truly start fresh. If you are looking into bankruptcy and would like to speak with an expert, contact us today to set up a free legal consultation!

Should I Stop Paying Creditors If I’m Going to File for Bankruptcy?

Woman looking through bills. OlsenDaines, serving Oregon and Washington explains if you should stop paying creditors if you're going to file for bankruptcy.

If you’re choosing to file for bankruptcy, and you’re current on your debts, you may be asking yourself if you should stop paying creditors now.

Automatic Stay

The short answer is, no you shouldn’t stop paying creditors until you’ve officially filed. When you file for bankruptcy, the court will order an automatic stay which will prohibit lenders from making harassing collection calls, sending threatening letters, and trying to file lawsuits against you. But until then, they can continue to harass you so don’t be surprised if you suddenly stop making payments.

In most cases, the automatic stay remains in effect until your bankruptcy case is concluded. Keep in mind, it won’t stop every debt collector. Automatic stay orders will not halt child support, loans against your pension, or back taxes. And if you filed for bankruptcy in the previous year, the order will expire after 30 days.

  • Auto Loans: if you stop making payment on your auto loan, at some point the creditor will attempt to repossess your vehicle. If you want to keep the vehicle, you may want to continue making payments so you don’t run the risk of getting it repossessed.
  • Credit Cards: in most cases, people are fine not making their credit card payments, but you will likely be subjected to collection calls until you file for bankruptcy. If you just used a card before you realized you were going to file, you may want to continue to make payments. We recommend consulting with a bankruptcy attorney.
  • Home Loans: as with auto loans, if you stop making your mortgage payments, at some point the creditor will attempt to foreclose the home. If you want to keep it, you may want to continue making your monthly payments. Every case is different.

Bank Setoffs

If you’ve taken out loans through your bank or credit union and you’ve stopped making payments, they can institute a setoff. This allows them to withdraw money from one of your accounts to another to cover the loan payment. You may want to move your money around before missing a debt payment.

Experienced Bankruptcy Attorneys

Filing for bankruptcy can help you “start fresh” if you’re facing mounting debt and pressure from creditors. However, there are many missteps you should avoid in the months and weeks leading up to filing.

To ensure you reach your financial goals, it’s best to work with an experienced bankruptcy attorney. OlsenDaines has vast experience with bankruptcy. In fact, we’re the top bankruptcy filer in Oregon. We’ll help you navigate the process and get your life back on track. To schedule your free initial consultation, contact us today!

What to Expect in Pre-Bankruptcy Credit Counseling

The decision to file bankruptcy is not an easy one to make. Many people experience enormous distress, shame and embarrassment over their financial difficulties. Without question, declaring Chapter 7 or Chapter 13 bankruptcy is no minor decision. But it just may be the right one for you. Especially if you cannot see any way of paying off your debt in the next 5 years.

Mandatory Pre-Bankruptcy Credit Counseling.

Before you can file for bankruptcy, however, you must complete mandatory credit counseling and receive a certificate. Once you have completed the counseling and have your certificate, you must file it with the court along with your other bankruptcy forms. Credit counseling is mandatory. If you do not file a certificate of credit counseling with the court, the bankruptcy court will dismiss your case.

But why do you have to do mandatory credit counseling?

Its purpose is to ensure that bankruptcy is your only best option. In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in response to the fact that many people who were financially capable of repaying their debts were using bankruptcy to have those debts discharged. This new law completely overhauled the bankruptcy law and made a number of important changes to bankruptcy rules and procedures. One of these changes was the requirement that debtors complete credit counseling both before filing bankruptcy and prior to discharge.

The purpose of pre-bankruptcy credit counseling is to provide an impartial look at whether or not a debtor really needs to file for bankruptcy.

The Where, When, and What of Pre-Bankruptcy Credit Counseling.

Pre-bankruptcy credit counseling may be the most painless part of bankruptcy. It can be done in person, by phone, or online; and it usually doesn’t take more than a couple of hours.

The most important thing to remember is that you must complete the counseling before you file for bankruptcy. Upon completion, you will receive a certificate that is valid for 180 days. If you decide to file for bankruptcy, you will need to file that certificate with the court.

For your counseling session, you will want to bring with you (or have available) information about your debts and your income.

The counselor will discuss your financial situation with you and will talk to you about what non-bankruptcy options you may have. Counseling will most likely include:

  • A thorough review of your personal finances
  • A discussion of alternatives to bankruptcy
  • Personal budget plan.

The counseling will help you to understand how bankruptcy works and what you can do to avoid financial risk in the future.

We’ll Walk You Through it!

If you are concerned about whether or not you should file for bankruptcy, or have questions about what happens if you decide to file for bankruptcy, give us a call. We offer free consultations. We are experienced bankruptcy attorneys with offices in Tigard, Salem, Albany, Grants Pass, Klamath Falls, Bend, and several other cities in Oregon. We also have offices in Vancouver and Tri-Cities in Washington. You can call us toll free at: 1-800-682.9568.

What is Bankruptcy Exemption Planning?

 

The main purposes of the bankruptcy laws are to:

  • Give an honest debtor a “fresh start” by relieving the debtor of most debts, and
  • Repay creditors in an orderly manner to the extent that the debtor has property available to do so.

One of the primary ways that the bankruptcy law attains its goal of providing debtors with a “fresh start,” is by providing debtors with certain “exemptions” that protect their property from creditors and put it beyond the reach of the bankruptcy trustee.

Bankruptcy exemption planning is the process of making deliberate choices concerning a debtor’s property before filing bankruptcy, to maximize the exemption protections provided by the bankruptcy law.

Warning: Bankruptcy Exemption Planning Can Be Dangerous.

Most people who file for bankruptcy do not lose anything they own because they often file a Chapter 7 bankruptcy and everything they own is “exempt.” Or, if they have non-exempt property, they file a Chapter 13 and are able to use its “adjustment of debts” option to protect their “non-exempt” assets. But bankruptcy is not a “one size fits all” proposition, so this isn’t always the case. Sometimes a debtor may have assets that are not exempt, but cannot be protected well through a Chapter 13. That’s when exemption planning can be very beneficial.

That is not to say that exemption planning is simple. It isn’t. It consists of developing strategies for managing and positioning your assets before you file for bankruptcy so those assets are protected once you do file. Those strategies may better enable you to pay certain creditors that you want to pay, or need to pay, over others that you don’t. But there are risks associated with exemption planning. Because of the dangers associated with exemption planning, especially over-aggressive planning, bankruptcy exemption planning should always be undertaken with the assistance of experienced and informed bankruptcy counsel.

As noted above, one of the main tenants of bankruptcy law is that honest debtors should be allowed to discharge their debts, and the law provides exemptions to allow them to do so. On the other hand, bankruptcy is not meant to benefit dishonest debtors. Section 727(a)(2) of the Bankruptcy Code prohibits any debtor who attempts to defraud creditors by transfers of property, from being discharged. Clearly, then, there is a tension in the law with regard to how much you are allowed to sell or transfer before filing for bankruptcy. To properly engage in exemption planning, you will need the advice of an experienced and highly competent bankruptcy attorney to guide you as to the safest way to engage in asset protection and other strategies, and to inform you on which strategies are likely to be safe, and which are risky.

Don’t Go it Alone!

If you have assets that are not exempt but can’t be protected well through Chapter 13, or are simply considering filing bankruptcy, you may well benefit from pre-bankruptcy planning. If you are in Portland, Eugene, Coos Bay, Medford, or any other city in Oregon, we have an office near you, and we provide free initial case consultations. To schedule an appointment, give us a call or send us an email.