CNN Money Lists 7 Best Credit Cards for Bad Credit

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

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

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

The featured credit cards include:

Orchard Bank

Capital One Secured MasterCard

Navy Federal ‘n Rewards Secured Card

Citi Secured MasterCard

Mango Prepaid MasterCard

Capital One Cash Rewards for Newcomers

Open Sky Secured Visa

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

 

How Do I Determine the Value of My Home If I’m Filing Bankruptcy?

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The value of your home, from a bankruptcy perspective, is a major concern that you will want to be aware of.  From too much equity to the possibility of “stripping a lien“, the value of your home plays a key part in your bankruptcy.  With the ever fluctuating real estate market, determining the value of your home may seem like a difficult and challenging task.

Family in Front of House

The Bankruptcy Court for the most part will rely on the tax value of your property as recorded by the Tax Assessor in the county which you reside. Many counties now have websites in which you can access detailed information on your property including the assessed value. Unfortunately, tax values don?t always reflect the true value of what your home may be worth.  If you think that the tax value of your property is overstated (or understated for that matter) you can always try a different avenue in determining the value of your home such as a Comparative Market Analysis.

A Comparative Market Analysis, which is also referred to as a CMA, is an analysis done by a real estate agent to establish a home?s market value. It is not an appraisal. The CMA compares homes of similar size, condition, age, and style in the same area or neighborhood that are currently on the market, under contract and that have recently sold. The comparables will in most cases better reflect the actual value of a home. It may seem like a lot of work to obtain a CMA but if it means protecting your home and your equity, in most cases, it?s worth it.

While most real estate agents will provide you with a Comparative Market Analysis of your home at no charge, some real estate agents may charge you if you are not putting your house on the market.

Every Bankruptcy Trustee is different and you will need to discuss your home?s value and what issues may arise around it with your attorney so he or she may give you advice that is tailored to your case.

Is Life Insurance Protected in Bankruptcy?

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There are two primary types of life insurance: term life and whole life.  There are many ways these can be structured, e.g. as a universal policy, but for our purposes we will look at the simplified term life insurance and whole life insurance policies.

A term life insurance policy does not mature until someone’s death.  As a result, when you file bankruptcy your term life insurance policy, or a policy that you are the beneficiary of, does not have any value until someone’s death.  If there is no value there is nothing to protect in your bankruptcy.  However, if you are paying premiums for a term life policy, the monthly premium should be listed in your budget.

Picture of Senior Couple

A whole life insurance policy has a “cash surrender value”.   This means after having the policy for a period of time, you can borrow against the proceeds.  Those proceeds could then be used to pay your debts.  Fortunately, as long as the whole life policy has your spouse and/or children as the beneficiaries and you are using North Carolina exemptions, it is protected under the North Carolina Constitution and the North Carolina General Statutes.  The North Carolina Constitution states that life insurance proceeds where the spouse and/or children are the beneficiary are protected from the claims of creditors.  As a result, you should be able to fully protect your while life insurance policy when you file bankruptcy.

If you are the beneficiary of a term life policy or a whole life policy and the person dies while you are in bankruptcy, those proceeds belong to your estate or the court.  As an example, if your great uncle Billy dies and leaves you $100,000, the $100,000 life insurance proceeds would be payable to the bankruptcy trustee to pay your debts.  If the life insurance proceeds pay all your debts in full, any remaining life insurance proceeds would be paid to you.  Life insurance proceeds that you become entitled to within 180 days of the date the bankruptcy is filed with the court is also property of the estate.  As a result, if uncle Billy dies two months after your bankruptcy is completed, but it is within the 180 days of the date you filed bankruptcy, those proceeds would become the property of the estate as well.  Therefore, you should tell your bankruptcy attorney if you believe you may receive any life insurance proceeds during the six months after you file.  As always, you should seek the advice of your bankruptcy attorney.

Hidden Traps of Credit Unions When Filing Bankruptcy

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

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

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

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

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

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

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

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

What Is Income for Purposes of the Means Test?

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Wait a second…I have to qualify to file bankruptcy?  Isn’t it enough that I just simply cannot pay my bills?  How do I determine whether or not I would qualify?  The answer is simple enough: the Means Test.  What is the Means Test you might ask?  The Means Test is a formula used to determine your ability to pay back all of your debts.  This will help determine whether or not you qualify for a Chapter 7 bankruptcy or if you will need to pay back some of your debts and file a Chapter 13 bankruptcy.   The Means Test will take in consideration all of the income coming into the home, as well as some of the expenses that are coming out.

What is considered income for the purpose of the Means Test? Here are the most common types of income that factor into the Means Test:

Types of Means Test Income

W2 Wages/Tips Self Employment Income (this also includes babysitting income)
Family Support Alimony
Income from Rental Properties Child Support
401k / IRA / Life Insurance Withdrawals Trust Accounts
Unemployment Pensions

 

Almost all income is considered for the purposes of the Means Test. However, there is a small number of sources of income, generally those that derive from the federal Social Security Act, that are not considered for Means Test purposes.

The Means Test regularly changes requirements for each state, currently, North Carolina is as follows:

Household Size: Median Income for Means Test:
1 $37,781
2 $50,630
3 $55,468
4 $67,578

 

Make too much?  Before you get discouraged, there are “qualified” deductions that help bring down that means.  Some qualified deductions are: taxes, medical insurance, life insurance premiums, mandatory deductions from you pay, charitable contributions, court ordered payments, and out of pocket co-pays and prescriptions.

You will need to sit down with your bankruptcy attorney and let them run a complete Means Test on you to determine whether or not you qualify at this time.  Looking at the past six months of pay stubs or a profit and loss will help an attorney determine whether or not you are able to pass the Means Test.