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by Diane L. Drain

The following is for a chapter 7 case.

Now that you have done a great job filling out your bankruptcy paperwork, filing all the required documents with the court, providing the trustee with the requested information, attending the meeting with the trustee and completing the post-petition financial management course (and filing the certificate with the court) you are looking for the discharge.

Remember that the discharge only deals with the creditors listed in your bankruptcy.

The court enters the discharge unless there is a request to postpone entry or if you have a matter pending before the court, like a reaffirmation agreement. The normal discharge time frame is approximately 120 after your case was filed the Clerk’s office.

Receiving the discharge is not the end of your responsibility to the trustee.

Your discharge can be revoked if you fail to submit documents, surrender non-exempt property or comply with requests from the trustee and/or the court.

If your case is an “asset case”, meaning that there are funds to be distributed to the creditors, then the creditors will have an opportunity to file proofs of claim.

There will be a a notice sent to all the listed creditors with a deadline to file their claims. The trustee will make a distribution based on the claims filed and then complete his or her final report.  The time period for all of this to occur differs depending on complexity of the items to be liquidated, and the work habits of the Trustee. This period could be a few months to a few years; but the average in Arizona is approximately 6-8 months. The clerk’s office will close the case once the distribution is completed and the the trustee files their final report.

The discharge notice will be mailed to all the listed creditors. The discharge prohibits the listed creditors from suing you or sending a demand for payment, unless you agree otherwise.

Just because a discharge has been entered does not mean your debts are all gone.

Certain debts survive a bankruptcy: child support, some taxes, most student loans, fraud which has been determined by a court, and several others. Also, debts secured on property, such as a house or car, will remain secured on that property. That means if you want to keep the house or car you need to pay for it. It is very important to talk to your bankruptcy lawyer in order to understand your rights and obligations.

The primary purpose for this article is to offer some suggestions in how to live relatively “debt free” life after filing bankruptcy with the hope that you never have to file bankruptcy again. Part of my discussion with each of my clients is to help them prepare for the future in which they have little to no unsecured debt. They related that after bankruptcy their lives have become more peaceful and less stressful. That is my hope for you.

Believe me – I know exactly what you are going through. Since 1985 I filed bankruptcies for hundreds of clients. I hear reports back from my past clients about them buying a new home just 2-3 years after bankruptcy, buying a new vehicle within 18 months of filing for bankruptcy or starting up a new business immediately after filing. Each person is excited about this fresh start for them and their family.

I would like to believe that every client I have helped is currently enjoying a “financially free” life.

But let’s face facts – this is probably not true. In the real world, you probably have been bombarded with credit card offers almost the day after you filed your bankruptcy petition. But this is a trap! These companies know you cannot file a Chapter 7 bankruptcy for at least 8 years, so they “sucker” you in now so they can make a lot of money or harass you to death for the next 8 years. I hope that none of you have fallen for this malicious trap, set up by big, rich, business people – but if you have, you better read on and see what you can do to get out of it.

The main credit card companies that hit most people who recently filed bankruptcy are names like Providian, Capital One, Orchard Bank, First USA, Direct Merchants, First Consumers, First Premier and many more. The names change, but the actions remain the same. These types of companies issue “high-risk” credit cards that ARE NOT the same as other credit cards you had in the past.

The difference in these types of credit cards is that you are charged high fees for everything.

For instance, Jane, who filed bankruptcy, received a pre-approved card from Capital One with a $200 limit. It was filled with “hype” about how they were concerned about helping Jane rebuild her credit. Lies!! They don’t care about building Jane’s credit. They are only interested in hooking her into another cycle of paying interest purchases made months or years earlier.

Jane’s new credit card had a monthly administration fee for this $200 credit card was $16.00. One month Jane had a $184.03 balance owed on her credit card. When the company added their monthly administrative fee, the balance became $200.03. This new balance was over her credit limit by only 3 pennies but Capital One added on an additional $39.00 over-the-limit fee. Note that it was Capital One’s charge that caused the balance to exceed the credit limit. Now, Jane knows the truth. The creditor was not interested in her, it was only interested in taking her money.

To get out of this mess, Jane cut up the credit card. She made a payment to take the bill under the limit and did everything in her financial power to pay off the debt over the next 3 months. Once the credit card was paid in full she wrote to the company and cancelled the credit card. (Side note – your credit will be “hit” every time you apply, open or close an account.)

Another “rip-off” credit card scheme is a bank that advertises on the internet. You fill in some basic information about yourself and you are issued a guaranteed credit card with a $200.00 credit limit. What’s so bad about this? The fee is $175.00. So regardless of whether you charge a penny on the credit card or not – your first bill will show an available balance of $25.00 with $175.00 in fees owed to them.

The only way you can cancel this card is by never using the card for a purchase; and by notifying the company within 3 days of the receipt of your card. If you do not notify them within 3 days and return the credit card cut in half, you will be liable for the $175.00 fee on a $200.00 credit limit card.

These “high-risk” credit card companies report your payment history to the credit bureau, but it really doesn’t do much to build your credit back up quickly immediately after bankruptcy. Bankruptcy will remain on your credit report for the next 10 years. Don’t believe the hype from these creditors about fixing your credit quickly. This is only a “sugar coated” lie to trap you back into debt.

For those of you who have secured debts (liens on houses or cars) timely payment of those debts will help to rebuild your credit quicker than credit cards.

The easiest and cheapest way to build your credit is to take $500 and deposit it into a savings account with a reputable and known bank or credit union. If you don’t have $500 right now, save out $10 or $20 every paycheck (you’ll never miss it) until you have the $500.

After you deposit the $500 with your bank, you apply for a secured bank loan for $500. The bank will probably give you the loan because they will put a “hold” on your savings account, assuring them they will not lose their money. Make your payments on time every month and never miss a payment. Within 90 days, you will have credit with a bank or credit union. This fact alone will outshine all those other “high risk” credit cards by a long shot and build your credit faster than using credit cards.

Again, making timely payments on all secured debts, such as your home and vehicles, will rebuild your credit very quickly.

We have bought into the mind set of “buy now and pay later”.

No other country in the world approaches debt the way we do in the United States. Having said that I am sad to see that Japan may be on our heels. Using credit and not letting credit use you should be the way you approach using a credit card. It should be a convenience, not a necessity. If you need it to pay your bills because you do not have money, then you are in real trouble.

Taking Out Title Loans on Vehicles Almost Guaranty That You Will Lose that Vehicle

Like with title loans on vehicles – if you need the money, but don’t have it, then you take out a loan with interest, now you are really in trouble because you have promised your vehicle to someone who does not care if you need the vehicle to get to work in order to pay your bills. They just care that they caught another sucker and got another car.

This is insanity! There is no good end to this story, except to inherit a lot of money, hit the lottery or file for bankruptcy.

Here is a clip from an article on what the author learned from wealthy people:

One of the things I learned from all the wealthy people I talked with was to stop using credit cards. And, if you do have to use them, use them to your advantage. How do you do that? You purchase an item on sale today with your credit card and pay the entire bill off when the invoice arrives. That way, you received the benefit of making use of the item up to 30 days before you paid for it. Some people will purchase a used car at an auction for $500 with their credit card, and then resell the car for $750 a week later. When the credit card bill arrives, they pay the $500 and they pocket $250 without laying out any out-of-pocket money or paying any interest charges.

Another thing I learned was that wealthy people shop at discount stores and clip coupons. Silly me. When I had credit cards and had the “credit card fever,” I shopped at Saks, Bloomingdale’s and other high-priced stores. This way I could brag to my friends about where I purchased an item. But again, this is insane and part of the mental disorder. Most “normal” wealthy people don’t shop at those stores unless something is on sale or if they cannot find the same item someplace else for a lower price.

Another thing I learned from wealthy people is that they are also prepared for periods in their lives when they are not living a wealthy lifestyle. Most wealthy people have a way of adjusting to their situation better than most of us. To illustrate, I knew a wealthy lady who dropped from a $250,000 per year salary down to $30,000 due to losing a large government contract. However, this lady never complained about the salary drop. One day I said to her, “I have never heard you complain about the large drop in salary. How are you coping with it?” She replied with a simple answer, “When you make less money, you just adjust your spending habits.”

There are numerous books and seminars on how to deal with a financial crisis. The first step is to prioritize your needs. Pay the important bills first and worry about “your needs” after your basic bills are paid, you have money in a savings account, your car is paid for and then spend a little money on “needs”. Obviously, your most important bill is rent or mortgage payment; then utilities, next a car payment (not a luxury vehicle). Then proper insurance, and so forth, depending on priorities.

Since the rent or mortgage is the most important, sometimes we have trouble still meeting the payment because it is only due once a month. Many people have a tendency of “putting off” paying the rent until their last paycheck in the month, because it isn’t due until then. However, what if you have an emergency expense at the end of the month? What if you pay your entire rent or mortgage payment out of this last check, and after deducting the emergency expense, you don’t have enough money left for food? That is a situation you don’t want to be in!!

To avoid this from happening, you need to deduct a certain amount EVERY paycheck to go toward your rent. For instance, suppose your rent is $1,000 per month and you are paid weekly. You need to automatically deduct $250 from your checking account the moment your paycheck is deposited. Remember, your rent or mortgage should be paid first, before anything else. By deducting $250 per week, you will have the $1,000 at the end of the month to pay your rent or mortgage – and it won’t be a big drain on you to come up with the entire $1,000 from one paycheck.

Note – do not wait to pay your mortgage until the end of the “grace period”. This is not rebuilding your credit. The mortgage payment is due on the first and delinquent on the 2nd. It can be reported as delinquent on the 2nd, even if there is a 15 day grace period.

In addition, you should use this same method with your utilities and car payment. Simply deduct a sufficient amount to meet these expenses from your checkbook every time you get paid (you don’t write a check, just deduct the expense.) You can label the transaction, Rent Payment #1, Rent Payment #2, and so forth in your checkbook so you will immediately know what this deduction is for.

Remember that it takes 21 days of consistent behavior in order to change a bad habit. Be consistent and don’t deviate from your plan.

Ask yourself why you went into debt. Did you “want” a bigger house or more impressive vehicle? Did you not have the necessary down payment for your first house? Did you feel it necessary to have the same things your parents had (after 40 years of accumulation)? Did you decide to buy something special because you had a fight with someone or a bad day at work? Did you incur unexpected medical bills and did not have enough savings?  Did your employer down-size, and you lost your job?  Did you invest in a business that hit a financial wall (only 10-20% of all business survive pass the first year).

There are so many reasons why we go into debt. Some responsible and others not. Take your time to educate yourself about why you had to file bankruptcy. It may be a situation that was not of your own making: medical or loss of job. Or it may have been of your own making: the need to keep up with the neighbors or not let the family know that finances are tight. You cannot correct your situation if you do not know why you found yourself in this financial crisis.

If the reason that you had to file bankruptcy was not of your own making – then forgive yourself and move on. Start your life over knowing that you made wise financial decisions before bankruptcy and will again.

Bank debit cards are probably the best thing that ever happened to people like you and me after filing bankruptcy. We all know what these are. They are cards that look like a Visa or MasterCard but when we use them, the amount is deducted from our checking account. Debit cards take the place of writing a check.

The main problem people have with using their debit cards is they forget to record the transaction in their check books, which is standard when writing a check. To solve this problem, simply take the receipt the cashier gives you and slip it inside your checkbook to record when you get home. Or, if your bank has an online banking service, review your bank account statement at least once every week and keep your checkbook balanced.

Another problem using debit cards is that some banks charge a fee. Some banks issue debt cards without the word “debit” on it. This way, when the cashier asks you “charge or debit” you can say “charge” and there may be no additional debit card fee. But check with your bank for the specifics. For example; I have a debit card through my credit union. One day I went to the post office to purchase some stamps and when the cashier ran my card through, I told her it was a “debit card.” On my bank statement I found a 75¢ charge for this transaction. However, the next time I went to the post office I told the cashier my card was a “charge” and there was no fee.

Even before credit cards existed, God gave us this wisdom in the Bible: “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.” (Romans, Chapter 13, Verse 8.)

This small verse is very powerful. It suggests you not to owe any man (this includes credit card companies) because God knew it would be living life similar to a jail sentence. Instead, He commands us to love each other, which is one of the main secrets to a happy and fulfilled life of joy, peace and contentment. I urge you to think about this and I hope you have a wonderful life.