Total Bankruptcy

How we talk about credit goes a long way in revealing our attitudes toward using it responsibly.  From Urban Word of the Day comes a new term to describe the junk mail flood of credit card applications.

Application for Debt:

An of offer of credit from a financial institution.

Wife: What did we get in the mail today?
Husband: Just an Application for Debt.

The original definition can be found on the Urban Dictionary.  For more serious definitions of common bankruptcy terms, visit the Total Bankruptcy Glossary.

The tough outlook for the economy has made many consumers feel the ill effects and caused them to make many changes in their day-to-day life.  But according to new figures made available, via Bloomberg.com, many aren’t quite ready to give up the affluent lifestyles to which they have grown accustomed.

According to these statistics, U.S. consumer borrowing more than doubled what was forecast for the month of March.  Instead of the $6 billion that economists predicted for the month, consumer credit leapt to $15.3 billion.  Compare that to February, in which credit rose by $6.5 billion, and you’ll note the severity of the swerve upward.  It marks the last month in a quarter that saw consumer credit as a whole rise by $34 billion, the most since the first quarter of 2001, which was not coincidentally the last recession into which the U.S. entered.

Experts point to new, tightened lending standards for home-equity loans as one culprit—in addition to the general recession—that is causing consumers to turn to credit in credit cards and the like.  With home prices dropping and potential to drop many more percentage points in the upcoming months, perhaps this latest shock will force economists to adjust their predictions in the second quarter and beyond.

For more on credit and foreclosure, visit the articles section at Total Bankruptcy.

After the mid-April House passage of a bill to address the shortage of student loans caused by the credit crunch, the Senate voted unanimously May 1st to pass a similar bill. According to the Wall Street Journal, Congress acted quickly to address the issue in time to help students applying for loans for the fall semester. President Bush has expressed support for the measure.

Both the Senate's version of the bill and the House's allow the government to temporarily buy more student loans to pump cash into the market. The two versions also allow students to borrower larger dollar amounts in federally-backed loans.

Experts expect the House to pass the amended version.

The House of Representatives heard testimony last week from Senators, credit card users, consumer advocates and members of the credit card industry on the Credit Cardholders' Bill of Rights, legislation proposed by Representative Carolyn Maloney (NY-14) to address abusive practices of the credit card industry and improve consumer protection.

A spokesman from the CFA and Representative Maloney both pointed to the credit card industry's remarkable ability to make vast profits in what it describes as a "risky" industry. Maloney hinted that the industry could save money by mailing fewer than five billion annual mail solicitations for credit cards, suggesting that interest rate hikes and late fees are only one way of making profit.

The COO of Citigroup's credit card division supported adoption of changes to credit card agreements proposed by the Federal Reserve. If adopted, the changes would amount to a baby step toward credit card reform.

To read the full testimony, follow this link.

If you pay attention to the news, you've likely heard a lot about credit reports and credit scores in the past few years. The subprime lending craze targeted loans at people with shaky credit histories, identity thieves are ruining people's credit scores, and more and more companies (like utility providers) are reporting debts to credit bureaus in hopes of collecting.

The latest unexpected thing that hurts your credit score? Red light cameras.

MyFox Dallas reports on "Bob," CEO of a successful company and a man without a single unpaid charge on his credit cards. But when Bob tried to take out a loan to buy the house of his dreams, he found his credit score had dropped thanks to an unpaid charge from a company he'd never heard of.

Turns out the company, Affiliated Computer Services, was in charge of running and monitoring Dallas' red light camera operation. The charge was from running a red light a while back.

The kicker? Bob wasn't even the one driving the car!

Apparently, one of his employees ran a red light in a company car whose title was in Bob's name. Because he wasn't in the car when the traffic infraction occurred, he had no idea that a fine was due.

And his mortgage broker told him his credit score was too low to get the loan for his dream house.

Moral of the story? Assume nothing. Companies are jumping on the credit-reporting bandwagon, and the list of items that affect your credit score is long and ever-growing. Be vigilant about checking your credit report once a year (visit annualcreditreport.com) and contest any mistakes.

Remember, everyone has a credit score to worry about. YOU have to take action to keep yours up-to-date and accurate.

Taking Out Store Credit Cards Can Lower Your Credit Score explains what you need to know before you enter the malls this holiday season and find yourself confronted with solicitations to apply for a store card and save 10%...in virtually every store you visit.   That 10% savings could end up costing you much bigger money in the long run.

Ohio legislators to cap interest rates for payday loans.  Payday loans can have effective interest rates of up to 391 percent.  Such interest rates can lead to bankruptcy. Legislators want to cap annual interest rates at no more than 36 percent, matching federal legislation regulating payday loans to members of the military.

The Ohio Finance Service Centers Association says a cap of 36 percent would put payday lenders out of business.

The United States Supreme Court ruled Monday in a case about insurance companies notifying you that you’re being charged more for insurance because you have a poor credit rating. The Court ruled that Geico and Safeco insurance companies were not liable for not telling customers their insurance rates were higher due to their credit ratings.

The Fair Credit Reporting Act requires insurance companies and other businesses to notify customers who are charged more because of their credit ratings. This is just another example of how difficult it is to rise above an economic shock such as unemployment or surprise medical bills.

The Court held that a company’s conduct must be more than careless; the company must be reckless in failing to tell customers that their credit ratings are driving up their insurance costs.

Fair Isaac, the Minnesota company that scores consumer credit ratings, has announced it will tweak its formula to better predict defaults on loans. A company spokesman said it’s new formula with improve its prediction of how likely a consumer is to default on a loan by 5 to 15 percent. While 15 percent doesn’t sound like much, reducing defaults by 15 percent could make or break a loan company and help consumers avoid bankruptcy.

Some consumer’s credit scores will go up and some will go down, but unfortunately, Fair Isaac didn’t say what would effect your score. 

Credit scores have done so well at predicting the likelihood a consumer would default on a loan, lenders have come to rely on the scores. Unfortunately, in the recent “wild west” environment of subprime and risky loans, Fair Isaac’s predictions haven’t worked well. Lenders say consumers with higher credit scores are defaulting on loans than in the past.

I checked my mail this morning. Sticking halfway out the outgoing mail slot was an envelope. Being nosey, I looked to see what it was. The envelope was addressed to Chase Identity Protection.

Now, it may just be me, but it seems that if you want to protect your identity, you need to do a bit better. Signing up with an identity theft protection service may help, but not if you just dump that information into the public yourself. To protect your identity, actually put your mail in the mailbox !!!!!

Minneapolis-based Fair Isaac and Equifax have settled class-action suits against them. Consumers who bought their credit-monitoring or scoring products between Nov 19 1999 and Feb 8 2007 may be eligible to receive benefits from the settlement. Under the settlement, Fair Isaac and Atlanta-based Equifax agreed to provide class members with three months of one of their services, Score Watch, for free.  Score Watch monitors a consumer's Equifax credit file and FICO credit score.

WVLT television, in Knoxville Tennessee, says that help is coming to protect people from identity theft, the fastest growing crime in America. Identity theft insurance is now available for as little as twenty-five dollars a year. Identity theft coverage is normally added to homeowners, condo, or renter’s insurance policies.

Most programs help victims of identity theft through the process of reclaiming their identities by helping policy holders obtain free credit reports, placing fraud alerts with all three credit reporting agencies, enrolling them in six months of daily credit monitoring, writing dispute letters, and other covered activities.

Most identity theft coverage will reimburse policy holders up to 25,000 dollars, with no deductible, for expenses associated with clearing their name and repairing their damaged credit.

Identity theft is one the fastest growing crimes in Kentucky, so Kentucky Trust Bank and WBKO television teamed up for “Shred Day.” Identity theft is the fastest growing crime in America, with nineteen people becoming a victim every minute. Nearly ten million people fall prey to identity theft each year, costing them over six-thousand dollars on average.

Shred day allowed people to bring their personal documents to be shredded. “Anything that contains drivers license numbers, social security numbers, any account numbers, anything like that really needs to be shredded to protect their identity”, says Kentucky Trust Bank worker Debbie Vance. Bowling Green resident Vicki Beckner said “The little shredders are time consuming so this is wonderful that they can bring their documents here and have them shredded.”

In 2005, Consumerinfo.com was fined $950,000 by the FTC for deceptive trade practices. Law week, the company, doing business as Experian Consumer Direct, agreed to another $300,000 FTC settlement for continuing to deceive consumers.

According to the FTC, Consumerinfo.com advertised “free credit reports” to consumers but failed to adequately disclose that those who signed up would be automatically enrolled in a credit-monitoring program and charged $79.95.

In addition to the free credit report, the company offered what was billed as free trials of a credit- monitoring service. To qualify for the service, consumers were required to give detailed personal information and a valid credit card account number. After the free trial period expired, consumers were automatically charged a $79.95 annual membership, unless they notified the Consumerinfo.com within 30 days to cancel the service. The 2005 complaint also alleged that Consumerinfo.com told consumers their credit card number was “required only to establish your account.”

All consumers in Illinois, New Hampshire, Oklahoma, Pennsylvania and Wisconsin have a new tool available to prevent identity theft.  The legislatures in these five states passed laws, which become effective tomorrow, providing consumers with a procedure to place a "credit freeze" on their credit reports with Equifax, Experian, and Trans Union.  Hawaii and Kansas also passed laws that will be effective tomorrow allowing only identity theft victims, not all consumers, a means to freeze their credit reports.

As identity theft continues to plague consumers nationwide, 18 other states have passed credit freeze statutes which are already effective.  Utah also passed a credit freeze statute which will not be effective until January 1, 2008.

Everyone should be watching their credit reports for errors and be on the lookout for any signs of identity theft.  Consumers who have recently filed for bankruptcy should be especially careful since many lenders may be contacting them  to setup up accounts.

Pennsylvania Governor Edward G. Rendell signed into law House Bill 180 which establishes the Credit Reporting Agency Law effective January 1, 2007.  The law provides Pennsylvania consumers with a useful tool for protecting their identity and credit reports by providing a procedure for a consumer to place a security freeze on his or her credit report.

Data breaches are occurring more frequently putting everyone at a much greater risk for identity theft.  It doesn't matter if you are financially stable, planning to declare bankruptcy or rebuilding your credit after bankruptcy, you should always be aware of who is accessing your credit report and your personal information.

The number of payday lending locations in Washington state increased by 90% since 2000.  The average payday loan amount in 2005 was $385.00 and the average payday loan fee was $48 in Washington.  Over 80% of payday loan customers take out more than one payday loan per year.

Payday loan companies in Washington typically charge 300-400% annual interest rates!  Consumers recently emerging from bankruptcy or considering bankruptcy as a solution can find better financing options from credit unions or even a cash advance from a credit card companies.

Payday lending practices hurt more than help a consumer's financial situation since the borrower has to spend so much money on the ridiculously high fees.  Washington state legislators are currently working on bills to cap payday lender fees at 36% and protect borrowers from the expensive, endless cycle payday loan companies promote.

When a consumer is considering bankruptcy or has already filed a Maryland bankruptcy petition, the last thing they need is to deal with identity theft too.  Unfortunately, Maryland is ranked 11Th by the FTC for the number of identity theft cases reported last year.  Consumers who are filing a Maryland Bankruptcy should be especially careful so they don't have to delay their bankruptcy case to deal with an identity theft case.

Personal data is at risk for theft by many different means and entering into either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy will not protect consumers from identity thieves.  Consumers in many states can review the freeze statute for their state to find out how they can protect their credit information.  Maryland consumers should check their credit reports regularly and take additional steps to protect their identity from thieves since Maryland does not have a freeze statute at this time. 

The "Do Not Call Registry" works well to stop annoying solicitors from calling you.   You can also stop credit card companies, mortgage lenders and insurance companies from mailing you offers by calling  1-888-5-OPT-OUT.  The consumer credit reporting industry provides this free program for any consumers including those who are rebuilding their credit after bankruptcy. 

High credit card debt can lead to bankruptcy, but the opt-out program can help you avoid tempting credit card offers more easily.  Opting out of the mailings will also reduce your risk of identity theft.  Identity thieves won't be able to steal these offers from your mailbox and use them to  apply for credit under your name.

Retailers put holiday decorations out the day after Halloween this year.  The holiday season began, whether you were ready or not.  You are now receiving hundreds of advertising messages to buy gifts and decorations for the holidays that are over a month away.  A budget can prevent you from ending up with an unmanageable credit card bill in January.

Large credit card debt can certainly put you in a dangerous financial situation that could lead to bankruptcy.  If you were to lose your job early next year, not only would you have the challenge of your regular monthly expenses but you would also have a large credit card payment to make as well.

Take it upon yourself to make a holiday budget right now.  Consider homemade gifts such as baked goods, photos or crafts if your budget is tight.  Avoid overspending this season and minimize one of the financial burdens that can force you into bankruptcy.

Oregon voters can decide whether insurance companies are allowed to base insurance rates for new customers on their credit scores. In 2004, voters passed a law to prohibit the insurers from using credit scores to set rates or cancel policies for current customers.

Insurances companies argue that customers with lower credit scores are more likely to have an accident or get sick. Consumer groups say no studies exist to prove that is true and credit scores are generally lower for minorities and people with lower incomes. The consumer groups also cite a 2004 study by the U.S. Public Interest Research Group showed that 25% of consumers credit reports contain such serious errors that would unfairly impact their insurance rates.

On Tuesday November 7, 2007, voters get to decide whether or not Measure 42 passes.

The Internal Revenue Service will soon be sending the records of 12,500 taxpayers out to private collection agencies. The agencies will pursue collection of tax debts that the IRS considers simpler, freeing up IRS agents to focus on more complex, high-dollar cases.

A pilot program to outsource tax debt collection failed a decade ago, but without funding to hire additional collections officers, the IRS has decided to try again. If the initial phase of collections goes smoothly, the IRS expects to hire up to ten additional outside collection agencies beginning in 2008.

Seventeen U.S. states have enacted provisions that allow consumers, under varying circumstances, to restrict access to their credit reports. However, proposed revisions to the federal Fair Credit Reporting Act could pre-empt those laws, making it impossible for states to extend these protections to consumers. Under the federal law, consumers would be able to freeze their credit reports only if they'd been the victims of identity theft--a measure one North Carolina lawmakers likened to putting on a bullet proof vest only after you've been shot.

While the proposed revisions include provisions aimed at requiring greater security for consumer credit information, the undermining of the more potent state protections has many lawmakers and consumer advocates questioning the bill.

As those considering bankruptcy or rebuilding credit after bankruptcy, keeping track of credit scores and items appearing on your credit report is critical. But monitoring credit reports is important for everyone, both because errors are common and because of the growing problem of identity theft.

During the past few years, several incidents have occurred in which huge volumes of consumer information was accessed. Usually, those incidents involve major banking or credit issuing companies. However, recently one of the largest potential breaches occurred, not from a credit issuing bank, but from the United States government. A laptop containing identifying information--including social security numbers--of 26.5 million veterans discharged since 1975 was stolen.

Veterans discharged during those years should consider obtaining their free annual credit report and look into the benefits of placing a free fraud alert on their credit records. In addition, Equifax is offering discounted credit monitoring services to veterans.

The U.S. Government provides more detailed information about the data disclosed and how veterans can protect themselves at http://www.firstgov.gov/veteransinfo.shtml

Many people who file bankruptcy are surprised to discover how quickly well-managed credit can recover. However, jumping the gun because you're too eager to rebuild credit can have the opposite impact. Accepting credit card offers simply because you want to start establishing credit again can end up hurting your credit scores in the long run.

High fees associated with many such credit card offers will have you making gratuitous payments that aren't going to help you keep your finances on track. A low credit limit combined with high "start-up" costs charged to the card can have your credit report reflecting that you're using a very high percentage of your available credit before you've ever spent a dime.

And, of course, while everyone starts out with good intentions, bankruptcy isn't a magical solution to money problems. It's important to take a hard look at whether you can really afford to make those payments before you start spending credit card dollars just to "re-establish" yourself.

Re-establishing credit after bankruptcy is important, but it's just as important to avoid the pitfalls that could put you right back in financial trouble.

Use the information on this site to make good decisions about establishing new credit, but use your common sense as well. When an offer seems unfavorable but you're tempted to consider it simply because you're eager to get your credit re-established, say no. There are better options out there, even very soon after bankruptcy, and it's important to take the time to educate yourself and find them.

Several major credit issuing banks reported this week that their first quarter earnings were down because an unusually high number of consumers were paying their credit card balances in full.

First quarter results were just announced this week, and already some card issuers are raising other fees to compensate for the lost interest and late fee revenues.

Read those circulars in your credit card statements carefully, or you may find yourself hit with unexpected or higher-than-usual fees on your next statement.

According to U.S. PIRG, one in four credit reports contains errors significant enough to effect credit eligibility. If you're among those 25% of Americans whose credit has been adversely effected by errors, the United States government wants your input.

Until May 22, federal regulatory agencies will be gathering information and input from consumers and professionals to help them create new guidelines for maintaining accuracy in credit reporting.

Each of the various agencies has separate guidelines and procedures for submitting comments, which can be found at:

Federal eRulemaking Portal

OCC Website

FDIC Website

NCUA Website

FTC Website

You've probably heard that you should check your credit report at least once a year for errors and signs of identity theft, but you may not know that federal law entitles you to receive your credit report for free once a year.

You can obtain your free credit reports through www.annualcreditreport.com - but be careful. The Federal Trade Commission warns that a number of sites using similar URLs are really sales outlets. Obtaining your free credit report does not require entry of your credit card information!

If you'd like to obtain your free credit reports from all three major credit bureaus, and do so without risk of being unwittingly registered for a reporting service that will bill you monthly or in a lump sum for the entire year, you can follow links from the FTC's website at www.ftc.gov to place those orders.

The three major credit reporting agencies announced this month that they have joined forces to create a standardized credit scoring system. The new scores will range from 501-990 and be grouped into the familiar A, B, C, D, F letter grade categories.

The change is intended to reduce inconsistency under the current system, where different lenders receive and base decisions on different scores, making the process somewhat unpredictable for consumers.

The scores will be available to financial institutions immediately, but consumer score reports will not be available until later this year.