Bankruptcy and Credit Reports

Though it should go without saying that bankruptcy is not good got your credit, you can begin to rebuild your credit immediately after filing bankruptcy by being prudent in your borrowing and by repaying bills timely. Generally, one can get a conventional home loan within 4 years of a Chapter 7 discharge, less in the case of Chapter 13 discharges and less in the case of some federally subsidized home loans.

The Fair Credit Report Act, at 15 USC 1681c, sets out the basic parameters of how long certain information can remain on one’s credit report. There are exceptions, but the basic rule is that bankruptcy can remain on your report for up to ten years and everything else can remain for up to seven years.

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In common lexicon, the understanding and usage of ‘fraud’ is exceptionally broad. Most fundamentally, ‘fraud’ is an intentional deception. This is pretty simple. Under Virginia law though, fraud is anything but simple. Proving common law fraud is particularly difficult. Though there are sometimes ways around these issues, here are a few of the common obstacles.

1. If you’ve contracted with the person you think has defrauded you, you probably don’t have a fraud claim. Virginia recognizes something called the economic loss rule. The economic loss rule is intended to maintain the difference between a cause of action sounding in tort and cause of action sounding in contract. It provides that where the plaintiff is a party to a contract and has suffered only economic loss, such as damages for inadequate value, the cost to repair a defective product, or lost profits, his remedy sounds in contract and not tort.

2. Contracts also have merger provisions typically, so if you enter into a contract based off of a misrepresentation, the misrepresentation will need to be very clear. Otherwise, the purported wrongdoer is going to say the misrepresentation is not a basis of the bargain, i.e. you waived it when you went and signed the contract.

3. Representations with regards to future acts are probably not going to be fraud because Courts generally do not consider such representations as relating to ‘material facts.’

4. Fraud needs to be pled with particularity. This means you are going to need more detail about the offense than is standard in a civil case.

5. Fraud needs to be proven with clear and convincing evidence. This is not as high of a standard as “beyond a reasonable doubt” but it is higher than “preponderance of the evidence” which is the typical standard in a civil case.

6. You need to prove someone’s intent. People rarely disclose why they are actually doing something.

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Credit scores are a bit like black boxes. There is not a single credit score. The FICO score is the most well known, but the algorithm is not public. Accordingly, the tips and suggestions that follow are general, but if followed, should help improve your credit score.

  1. Understand your credit reports, particularly the big three, TransUnion, Experian and Equifax. If an investigative consumer report is causing you problems, you need to see that report and understand that report. By understanding a report, you need to understand everything on it. Once you do so, you need to address all inaccuracies with the agencies to get them removed, explained or supplemented. Sometimes missing information can be damaging. If you have a credit card with a $2,000 balance on it and a $10,000 credit line, but the Credit Reporting Agency (“CRA”) is only reporting a $2,000 credit line, this is hurting your score. You are appearing over extended.
  2. Keep low balances on your accounts. Generally 10% to 15% is ideal. Anything above 50% is probably hurting your score.
  3. Don’t use a credit repair organization. Do it yourself or use an attorney. There is a reason why Congress passed the Credit Repair Organization Act and Virginia has the Virginia Credit Services Business Act. The industry has lots of problems.
  4. If you settle debts with a creditor have the creditor stop reporting the debt to the CRA’s. If there is a judgment against you, have the judgment creditor vacate the judgment in return for paying off the judgment or a portion of it.
  5. Paying on delinquent debts can actually hurt one’s score by making the debt appear more recent.
  6. Get rid of delinquencies. Bring accounts current.
  7. Keep in mind that the two most important things affecting your credit score are probably your payment history and the amount of credit that you are actually utilizing. If you are overextended, i.e. you are borrowing a lot relative to what you are allowed to borrow, this hurts you. Don’t borrow maximum amounts extended to you.
  8. A single 30 day late payment can drop a FICO score by as much as 100 points. This is the difference between having excellent credit and having average credit.
  9. If you are looking for good interest rates, do your shopping in as short of a period as possible. Multiple inquires over the course of week is fine. Multiple inquires over the course of a couple of months will hurt you.
  10. Consider getting yourself added as an authorized user on someone else’s account who has good credit, for example a spouse or a parent.
  11. Make sure joint accounts are listed as such.
  12. If accounts are showing up multiple times on your report, get the duplicates removed.
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Junk debt, sometimes known as zombie debt, is debt that has been sold multiple times. Often the debt is bought for pennies on the dollar and then the buyer of debt tries to collect 100 cents on the dollar and often attorney’s fees and interest on top of the actual debt. The practice can be highly profitable. The owner of the debt just needs to be able to collect periodically. Often this means being aggressive in collection efforts and doing it on a mass scale.

The debt that is selling for pennies on the dollar generally has some problems with it. The original debt collector has been unable to collect on it. Once the debt has been sold one or more times, it generally accumulates some new problems. These problems often make the debt legally unenforceable. Often these issues never get raised and the debt gets collected.

The problems are pretty basic and almost certainly anyone well acquainted with the collection of such debts is aware of them. The debtor though is often not and often the debtor is unable to afford an attorney even though it would likely totally change the dynamics of the situation.

The Typical problems are:

A.  The debt buyer and sometimes even the original creditor cannot prove the debt. They just don’t have the evidence whether it be documentary evidence or witnesses. A civil defendant always has the right to make a plaintiff prove his case against him. This process is necessary to protect the integrity of the judicial system.

B. The statute of limitations may have expired. On credit card debt in Virginia, this is going to be either three or five years, depending on whether or not the debt is based on a written contract or not. People are supposed to get second chances unless they’ve done something like murder. There is no statute of limitations for murder.

C. The assignment may not be provable. You cannot collect on  a debt that you do not own. When you are selling something for pennies on the dollar, details generally get overlooked.

D. The debt may be based off of inadmissible evidence, e.g. hearsay. Often it is hearsay within hearsay. Hearsay is generally not admissible in Court because it is considered unreliable.  There are exceptions.

E. Someone has already sued the debtor for the debt and now someone is trying to take a new bite at the apple. This is called res judicata and it is not permitted.

The success of the debt collection industry is based on of people paying the debts without having full knowledge of the law and their rights. The industry makes a lot of money because the debt owner claims do not get tested in Court. If you want to pay debts that you don’t legally owe out of a sense of obligation, you should pay the original creditor.

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Virginia’s Automobile Repair Facilities Act

The Virginia Automobile Repair Facilities Act, (59.1-207.3 of the Code of Virginia), sets forth requirements for automobile repair facilities’ contracts with consumers. Written estimates are required (e.g. labor costs, part costs, time to repair, description of problem) if requested, and must be provided before work of more than $25 is commenced. A repair facility may impose a reasonable diagnostic fee but it must disclose this fee upfront.

Unauthorized charges for repairs that exceed 110 percent of the estimated costs are prohibited. The repair facility is also required to offer to return the replaced parts, as well as to provide a written invoice that clearly states the work performed and the charges for parts and labor. A violation of the ARFA is a violation of the Virginia Consumer  Protection Act and is subject to its enforcement provisions.

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Student Loan Burdens and Forgiveness

An interesting starting point if you are dealing with student loans you can’t handle.

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Understanding your insurance premiums?

Consumer Reports has a great story about how insurance companies set
rates.  The link is below and you do not have to have a subscription
to read it.

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