Boston Bankruptcy Lawyer Blog

After 25 years of representing individuals in Massachusetts bankruptcy, clients often ask how filing for Chapter 7 bankruptcy in Massachusetts will affect their credit rating. What happens after the Boston Bankruptcy Court issues a Massachusetts bankruptcy discharge? How long will the words Massachusetts bankruptcy stay on your credit report? How long will a Massachusetts foreclosure stay on your credit report? Call Boston bankruptcy attorney Neil Burns for answers to your personal questions, or read on.

We have addressed these questions before, but now that the 2010 and early 2011 wave of bankruptcies has subsided, perhaps the perceived stigma, and the hope for personal recovery, has highlighted credit score oriented questions anew.

According to "experts," bankruptcy stays on your credit report for up to 10 years. It has an adverse affect on your credit score. However, as time goes on, if you work on improving your score, the fact that the bankruptcy discharge is on your report, has a diminishing effect on your score.

According to those same "experts," a foreclosure stays on your credit report for up to seven years. That doesn't mean you can't buy a new home for seven years. If you have no new debt, something for a down payment, and a good "new" credit history, you will likely qualify for some, albeit higher interest, mortgage loans in just a few years after personal bankruptcy.

And what about a car? The American dream, and now, for better or worse, the world's dream. The "experts" seem to say that motor vehicle loans are the quickest. The lenders, banks and car companies, lend to almost anyone, anytime. The same is true for leasing a vehicle. The issues is the rate of interest they would charge and the other terms that will be far better for those who did not have to seek bankruptcy protection and discharge their debts.

How do you increase your credit score, to work on getting the home, car or simply a credit card? Increasing credit score after bankruptcy was the topic of our blog,http://www.bostonbankruptcylawyerblog.com, on April 25, 2011. That article pointed out that using secured credit cards was an excellent way of working toward a higher credit score. On January 7, 2011, we wrote about using credit unions to secure a credit card because they are more likely to issue one to someone following personal bankruptcy in Massachusetts.

It is also helpful to know how FICO calculates your score, so you can effectively work on increasing your score. We have an article on our website that discusses increasing your credit score in Massachusetts but we will outline some of that information here.

One, have a bank account. Many folks want to live simply, or can't manage a bank account, but the lenders want to see that you have one, and that you can manage it. Two, get a debit card from your bank, or credit union, and establish responsibility. Three, get a secured credit card through your bank or credit union, as discussed in above referenced blog article. Four, pay all of your bills on time so there will be no negatives reported in your credit report. Five, avoid bad lenders such as those that charge exorbitant rates and the payday loan folks. Six, get a free copy of your FICO credit report and write the agency to correct mistakes. Back up your writing with documents. Seven, live within your means to avoid problems and bad times that may come.

In a case handed down by the First Circuit Court of Appeals earlier this month, the Court stated that a bankruptcy debtor who was denied a discharge was valid because the debtor "intentionally and fraudulently omitted" and undervalued assets from his Massachusetts bankruptcy petition. The case, called In Re: Sullivan, Brian J., and published by Judge Votolato, was appealed from a decision by Bankruptcy Judge Feeney.

The assets were as follows:

A Rolex watch, which the debtor wore to the 341 Creditors Hearing, was not listed in the Petition or Schedules. The debtor later argued that he was not in any way intentionally or fraudulently misleading the Court, it was simply inadvertence. He also argued that he thought it had not value. The Court did not believe him, and the Appeals Court affirmed Judge Feeney's decision saying that there was no clear evidence of the Judge's finding.

Second, a bank account with $1,800 in it was presented as a bank account with $300 in it. The debtor argued that there was a difference between the date of signing and the date his attorney filed the Petition. This likely happens often; a paycheck gets deposited between those two dates, for example, and is rationally explained. However, the Court found that this debtor was "clearly inconsistent" with his explanations. The Court found him to be lying considering his signed Petition to be a false oath. The Appeals Court generally not likely to overturn such a finding by the judge that sits there, watching the debtor answer questions and listening to the answers.

Third, a motor vehicle that the debtor owned the Court found to be undervalued. The Chevelle necessitated $25,000 in upgrades, but was valued at $9,500 on the Petition. Apparently the debtor's parents paid for the upgrades. The debtor admitted that the vehicle had appreciated in value since signing the Petition. It is not clear to me from reading the Court's decision as to what happened here. But to some extent this sounds very fishy. While many of our Massachusetts bankruptcy clients are helped by their family, with childcare, regular financial gifts, and even vehicles, there are very few (in fact I don't recall any) where $25,000 was paid for upgrading a vehicle. Further, none of our clients' vehicles appreciate in value. The Bankruptcy judge found that the debtor "intentionally undervalued" the vehicle and did not believe the debtor's testimony, and the Appeals Court confirmed.

In a blog article from our bankruptcy blog, http://www.bostonbankruptcylawyerblog.com/,that we published on April 29, 2010, titled Bankruptcy Law Update, we noted that a debtor lost his rights to a discharge after he, along with his bankruptcy lawyer, mislead the Bankruptcy Truste, regarding the characterization of his divorce settlement.

There is a very simple lesson to these cases: tell the truth; tell only the truth. Many times telling the truth to your Massachusetts bankruptcy lawyer will enable him or her to work with you to plan your Petition and Schedules. Sometimes it means using Chapter 13 and not 7. Sometimes it means waiting to file until after a gift date has cleared. Sometimes it means filing sooner because of an expected event such as a marriage, or later after a child is born. Competent Massachusetts bankruptcy lawyers work with you to make a plan. Don't get caught filing a false Petition, get professional assistance.

As a Boston bankruptcy lawyer who writes a bankruptcy blog, http://www.bostonbankruptcylawyerblog.com, to keep our Massachusetts bankruptcy clients appraised of the news and trends in bankruptcy law, we have come upon a fascinating new study we like to report on. The extensive research report looked at the changes in the demographics of personal bankruptcy filers since 2005 in the attempt to answer the following question: What does the person who filed for bankruptcy this year look like in comparison with those five years ago? The report was a topic of a blog post by bankruptcy attorney Richard Olson, of Perkins Olson, who practices commercial law in Portland, Maine.

The 2010 Annual Consumer Bankruptcy Demographics Report was published this month by the Institute for Financial Literacy, a non-profit with a goal of providing financial education and counseling. The report is intended to give a perspective of the five years following the new bankruptcy law, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which went into effect in October of 2005. The wealth of data "does not lend itself to drawing final conclusions," but identifies issues and serve a basis for discussion among academic and consumer forums like our bankruptcy blog.

Among the findings are the following:

Gender Findings

1. The gap between men and women filing for personal bankruptcy is narrowing; in 2006 it was 46.4 % men and 53.6% women while in 2010 it was 47.74% men and 52.26% women.
2. Married filers increased form 57.2% to 64.10%; while single filers when from 21.8% down to 17.09%

Educational Findings

1. More than 70% of those who filed for personal bankruptcy did not graduate from college.
2. The bankruptcy rate among Americans with a college or advanced degree increased disproportionally.
3. Filers with a college education increased by 20%.
4. The rate for those that started, but did not finish, college rose significantly. This could be due to large student loans, which cannot be discharged, and inability to find employment without the expected degree.

Income Findings

1. 74.2% bankruptcy filers earn $40,000 per year or less in 2010, however, that number was 80.7% in 2006.
2. Those earning over $50,000 per year saw the greatest increase in filing rates.
3. Filers earning more than 60,000 per year increased from 5.5% to 9.18%, a dramatic increase compared to other income categories.
4. Unemployed bankruptcy filers increased by 23% following the 2008 recession.
5. Filers with incomes over $60,000 increased by 66%.
6. Unemployed filers increased by 21%.

Marital Status Findings

1. Married filers represent over 60% of bankruptcy filers, 35% were joint petition filers.
2. Married filers have increased by 12%.

Age Category Findings

1. The rate of filing among 18 to 24 year olds decreased from 3.3% to 1.33%
2. The rate of filing among 25-34 year olds decreased from 21% to 15.94%.
3. The rate of filing among people 34 and younger has decreased by 30%.
4. The rate of filing among 35 to 44 year olds decreased from 29% to 27.54%.
5. The rate of filing among 45 to 54 year olds increased from 24.9% to 28.45%.
6. Relative to the population 20 to 60 year olds have a disproportionate share of bankruptcy filers.
7. The rate of filing among people older than 45 has increased by 18%.
8. The rate of filing among 55-64 year olds increased from 14% to 18.12%.
9. The rate of filing among 65 and older folks increased from 7.8% to 9.12%.

Race/Ethnicity Findings

1. White filers decreased from 72.5% to 71.63%.
2. Black filers decreased from 15.4% to 11.30%.
3. Asian Americans have increased filing by over 100% - from 2.1% to 4.6% while Asian Americans are 4.2% of the population in 2010, bringing them in line statistically with other ethnic groups.
4. Hispanic filings increased by 33% - from 6.% % to 8.68%.
5. Native American filers decreased from 1.1% to.75%.

Causes of Financial Distress between 2006 and 2010

1. Filers overextended on credit went from 62.7% to 70.5%, the most dramatic increase.
2. Filers with unexpected expenses went from 57.1% to 56.62%.
3. Filers with a reduction in income went from 52.2% to 64.96%.
4. Filers with a job loss went from 36.1% to 43.57%.
5. Filers with illness or injury went from32.8%to 30.96%.
6. Filers with divorce as a cause went from15.5% to 15.51%.
7. Filers with the birth or adoption of a child went from 8.7% to 9.155%.
8. Filers who lost a family member through death went from 8.4% to 7.86%.
9. Filers whose cause of filing was retirement went from 2.3% to 1.85%.
10. Filers who were victims of identity theft went from 2.3% to 1.85%.