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Numerous Requirements There are numerous requirements that must be met by a debtor in a chapter 7 bankruptcy case. The debtor must complete a credit counseling session within 180 days of filing the petition. The debtor must complete a two hour personal financial management instruction course sometime after the case is filed but prior to+ Read More
The post Chapter 7 Bankruptcy Audits Prove Burdensome On Debtors appeared first on David M. Siegel.
Ten years ago this month the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) became effective. The act was designed to make filing bankruptcy more difficult by requiring filers to provide more information to court trustees that supervise the process and by installing a mathematical formula to keep higher income debtors out of chapter 7.
Is the reform act at success? Hardly. Despite the fact that some changes in the law had the effect of supplying the court with more income information and imposed limits on repeat filers, the vast majority of changes were unnecessary and are detrimental to the process.
The Good Reforms:
- Limits on Repeat Filers. The drafters of the reform act felt that some people file too often, especially on the eve a foreclosure sale. BAPCPA limited how often a person could file bankruptcy. Chapter 7 cases may only be filed once every 8 years and those individuals who have been debtors in several cases within the preceding year do not automatically get protection without seeking court review of their case.
- Forum Shopping. Some states have generous exemption laws that protect a debtor’s property, while other states are more frugal. BAPCPA curtailed this process by requiring debtors to use the exemption laws of the state a they lived in the majority of the two years prior to filing bankruptcy.
- Homestead Exemption Limits. Prior to BAPCPA, wealthier debtors moved to states with unlimited homestead exemptions (such as Texas and Florida) and protected their money by purchasing expensive mansions. BAPCPA put a cap on homestead exemptions. Sorry kids, no moving to a beach house when daddy’s business goes down.
- More Income Documents Provided to Trustees. Debtors must supply the bankruptcy trustee with their last two tax returns and 2 months of paycheck stubs.
- Bankruptcy Attorneys Responsible for Accuracy of Case. The reform act holds bankruptcy attorneys to a higher standard and requires that they perform a due diligence investigation of the information reported instead of just taking the debtor’s word for its accuracy. Good attorneys always did this, but it is fair to say that the reform act has put a healthy amount of fear in the hearts of bankruptcy attorneys. Many attorneys, including this one, now obtain background reports to ensure that all property and property transfers are reported.
The Bad Aspects of the Reforms:
- Cost of Bankruptcy Skyrockets. The cost of filing bankruptcy immediately doubled when BAPCPA was enacted, and for good reason. Attorneys must gather substantially more information to prepare the case, they must prepare six-month income calculations and investigate the debtor’s financial condition much like an auditor.
- Means Test. To keep higher income debtors out of Chapter 7 and to establish a nationwide standard of how much debt had to be repaid in Chapter 13, BAPCPA created a mathematical formula based on a debtor’s last six months of income. In practice, however, the Means Test has been a disaster to administer. The central defect of the test is that most debtors do not have consistent income in the six months prior to filing bankruptcy. It is common that debtors have lost a good paying job just shortly before filing bankruptcy, so the six-month average does a poor job to forecasting what the debt they can really repay. Conversely, some debtors were unemployed for a substantial time prior to bankruptcy but obtained a higher paying job just before filing. Past income is often a poor predictor of what future payments should be, but the Means Test is built on this faulty foundation. In addition, some types of income are not counted as income on the means test, such as Social Security income, so the test is often passed by debtors who really should fail. Lastly, the means test favors secured debt so higher income debtors with big homes and fancy cars commonly pass the test while debtors who denied themselves such luxuries find they fail the means test. Because of its complexity and poor drafting, bankruptcy courts struggle to establish a uniform method to apply the test. The Means Test has failed its basic purpose and should be abolished. Those who claim the means test has reduced the number of bankruptcies being filed are dead wrong. Bankruptcy filings are down because the general rate of participation in the workforce is down.
- Mandatory Credit Counseling. The drafters of the reform act require debtors to take a credit counseling class prior to filing bankruptcy and another course before the case is completed. The idea here is that if people would just spend a little time getting the facts about budgeting and money management, perhaps fewer folks would file bankruptcy. This sounds nice, but as practiced this credit counseling is generally worthless. Most of the courses are completed online and debtors just click through a series of mundane questions. No real counseling is occurring. Tragically, less sophisticated debtors without access to the internet are unable to get the credit counseling completed and, consequently, their homes are being lost to foreclosure and their paychecks are garnished. Thousands of debtors have lost their homes to foreclosure because bankruptcy attorneys are unwilling to meet with debtors whose homes are scheduled for sale until they complete the credit counseling class prior to meeting them. Requiring a family who faces the humiliation of filing bankruptcy to learn about money management is just pouring salt in an open wound. A single mom earning $9 per hour doesn’t need a credit counseling class–she needs housing, education, health insurance, child care and a higher paying job.
- Private Student Loan Discharge. Prior to BAPCPA, a debtor could discharge a private student loan but not federally guaranteed loans. The reform act now protects private student loans from discharge, and as a result there has been an explosion of debtors saddled with unmanageable student loan debt. Private student loans are the single worst debt in America. College financial aid departments steer students to these dangerous loans without any real discussion of the burden this will place on graduates and their families. Students are often unaware of the significant differences in repayment terms between federally guaranteed loans which offer income-based repayment plans and private loans which do not. BAPCPA has created a monster student loan debt nightmare for millions of America’s young families and for the parents who foolishly co-signed these loans.
- Extended Duration of Chapter 13 Plans. Prior to BAPCPA a chapter 13 case could be completed in 3 years. Debtors with above-median incomes are now required to remain in chapter 13 for 5 years so that, in theory, they can repay more of their debt. In reality, this change has decreased the success rate of chapter 13 payment plans and it also causes higher income debtors to load up on secured debts–especially car loans–prior to filing their case. Debtors tied up in 5 year cases are not buying homes, cars, furniture, etc., and the economy as a whole takes a hit by taking these consumers out of the market. Five year payment plans are too long.
Image courtesy of Flickr and Woodleywonderworks.
When you’re in debt, the last thing you want to do is file for bankruptcy. Between the costs and the general stress of having to confront the stunning realization that you’ve got nowhere left to turn, the solution just doesn’t feel like much of a solution.
But when you think about it, bankruptcy is like powering down your phone and rebooting. Something wasn’t working right before, but in the blink of an eye it’s all smooth sailing again. And that’s pretty compelling, isn’t it?
The end result of bankruptcy is, ideally, what’s called the Discharge of Debtor – a formal term that means, “you don’t owe the money anymore.”
Bankruptcy lawyers like me throw around the term like it’s something you learn in kindergarten, forgetting that it’s foreign to most people. With that in mind, here’s your ultimate guide to the discharge in bankruptcy – this time, for a Chapter 7 case.
What is a Discharge of Debtor?
A Discharge of Debtor (which I’ll call a Discharge from now on) is a legal document that releases you from personal liability for certain types of debts you owed before filing for bankruptcy.
Once the bankruptcy judge issues your Discharge, you are no longer legally required to pay any debt that is legally considered to be discharged. You’re allowed to pay the debt later on if you’d like to do so, but the creditor can’t try to collect it from you – ever.
The Discharge of Debtor is stamped with the name of the judge, but it’s issued by the Clerk of Court. In most cases, the judge never sees your Discharge and has no interaction with the administrative processing of your case.
When You Receive a Discharge
When you file for bankruptcy you’re required to attend a Meeting of Creditors. Your creditors, the Chapter 7 trustee, and any other interested parties have 60 days from the Meeting of Creditors to object to either your discharge or the dischargeability of a particular debt. Once that deadline passes, you’re eligible to receive your Discharge of Debtors. In most cases, your Discharge will be issued about 30-90 days after the deadline passes.
In a Chapter 13 case you’ll have to attend a Meeting of Creditors as well as a Hearing on Confirmation (though some places don’t require you to attend that hearing). Once your Chapter 13 Plan is approved by the court you’ll be required to make payments to the trustee. When the payments have been completed and you’ve done the other work necessary to complete the Plan, you’ll get your Discharge from the court.
Finding Out About the Discharge
You will receive a copy of the Discharge of Debtor in the mail about a week after it’s issued by the court. You may also get a copy from your lawyer, who will get a copy electronically the minute it’s filed with the court. If you specifically ask your lawyer to forward you a copy by email, that shouldn’t be too much to ask.
Creditors will also receive a copy of the Discharge of Debtor in the mail within about a week of the date on which it is issued by the court. It will show up in a regular envelope along with the usual U.S. Postal Service mail. Many creditors also subscribe to online services that provide them with immediate electronic notification of your Discharge.
The rest of the world will know about your Chapter 7 bankruptcy discharge only if they either receive a copy of your credit report or go to the courthouse and type your social security number into the system. Your bankruptcy information is considered a public record, but it’s not something that’s broadcast on the evening news.
Which Debts are Discharged – And Which are Not
In general, your Discharge will wipe out your personal liability for repayment of the following types of debts:
- credit cards;
- personal loans;
- medial and dental bills;
- personally-guaranteed loans.
Depending on the type of bankruptcy case, other debts aren’t going to be wiped out. If you file a Chapter 7 case, you will still be required to pay the following debts after your case is completed:
- certain tax debts;
- those the bankruptcy court finds were incurred by
- false pretenses
- false representation
- actual fraud
- breach of fiduciary duties, embezzlement or larceny
- use of a false written statement;
- debts of more than $600 incurred for luxury goods and services within 90 days of the filing of bankruptcy;
- debts of more than $875 incurred for cash advances within 70 days of the filing of bankruptcy;
- debts for domestic support obligations;
- debts for willful and malicious injury to a person or to a person’s property;
- debts incurred due to fines, penalties and forfeitures to the government unless those debts are older than three (3) years and not for a tax;
- student loan debts (unless the debt is found to meet a separate standard for dischargeability);
- debts due to death or personal injury caused while driving intoxicated; and
- debts that were deemed nondischargeable in a prior bankruptcy case.
If you file a case under Chapter 13, however, some of the debts that would survive a Chapter 7 case are going to be wiped out. In fact, the Discharge at the end of a Chapter 13 case will leave you with only the following obligations:
- family support;
- restitution;
- those the bankruptcy court finds were incurred by
- false pretenses
- false representation
- actual fraud
- breach of fiduciary duties, embezzlement or larceny
- use of a false written statement;
- student loan debts (unless the debt is found to meet a separate standard for dischargeability);
- debts due to death or personal injury caused while driving intoxicated; and
- tax debts for which you did not file a return before your bankruptcy case was filed.
What About Mortgages and Car Loans?
When you take out a mortgage or a vehicle loan, the creditor takes what’s called a “security interest” in the property. That means if you don’t pay, the creditor gets to take back the property.
The Discharge you get at the end of a Chapter 7 case will end your personal liability for repayment of mortgages and car loans, but that means only that the creditor isn’t allow to sue you personally for any money. It doesn’t mean you aren’t required to continue paying the debt if you want to keep the property or the vehicle.
If you fall behind on a mortgage or vehicle loan after bankruptcy, the creditor can take legal action to recover the item through foreclosure or repossession. You won’t face a lawsuit for any money that remains outstanding, but you’ll still lose the property even if you file for bankruptcy and got a Discharge.
The situation is different in a Chapter 13 case, though. Under Chapter 13, a mortgage or a vehicle loan is considered a long term obligation if the term extends beyond the end of your Chapter 13 repayment plan. If that’s the case then your obligation to repay the debt is not wiped out with a Chapter 13 Discharge.
Student Loans Discharged in Bankruptcy
Under the bankruptcy laws, student loans can be wiped out only if there is a separate finding by the judge of undue hardship. This standard applies to all student loans – federal loans, private loans, and those issued or guaranteed by other countries.
In order to get to that stage, you’ve got to file a separate lawsuit in bankruptcy court, called an adversary proceeding, against the student loan lender. Your lawsuit needs to claim that excepting the student loan debt from discharge would impose an undue hardship on you and your dependents.
The term “undue hardship” isn’t defined by the bankruptcy laws, which means that different courts have different meanings as well as different standards they apply when deciding whether to discharge your student loans.
In the absence of an order from the judge that specifically says your student loans are discharged, they are going to follow you out of bankruptcy.
Getting Tax Debts Discharged in Bankruptcy
Under bankruptcy law, income taxes can be considered non-priority debts or priority debts. Bankruptcy will discharge non-priority debts, but not priority ones.
In order to be considered a non-priority debt, the liability must meet the following rule:
- Your tax returns must have been due three years or more before the petition was filed;
- Your tax returns have to have been filed more than two years before the petition;
- The tax you owe must have been assessed against you by the government for at least 240 days before the case is filed;
- Your tax returns must have been truthful and not fraudulent; and,
- You must not have been intentionally attempting to evade or defeat the tax when you failed to pay.
If an income tax debt is considered a priority debt it will not be wiped out in a Chapter 7 case, and must be paid in full if you file a Chapter 13 case.
How Much of the Debt is Discharged?
If a debt is discharged in bankruptcy then the interest on the debt is also wiped out. You don’t need to worry about the extra money that adds up between the time you file and the date of your Discharge.
In a Chapter 13, any priority debt that’s paid in full won’t accrue interest either.
If You Forget to List a Debt on Your Bankruptcy
You may owe money to a lot of companies. Perhaps those debts have been bought, sold and transferred so many times you don’t know who you owe money to anymore.
If you file a Chapter 7 case and forget to list a creditor, the debt is still discharged unless the bankruptcy trustee had an asset that was sold so that the proceeds could be distributed among your creditors. The creditor won’t know about the discharge so you may still be subjected to collection efforts, so you’ll need to let them know after the case is over. The only exception to this rule is that the debt won’t be considered discharged if it would not have been wiped out in the case had it been listed.
If you don’t list a creditor in a Chapter 13 case then the debt is not discharged.
That’s why it’s a good idea to double check your list of debts before you file your bankruptcy case. Take the extra step of getting copies of your credit reports if you think there’s even a remote change of missing a debt.
What a Creditor Can’t Do After Discharge
Once you get your Discharge, the creditor can’t start or continue a lawsuit against you that demands you to pay money for the debt. If there was a lawsuit going on before you filed for bankruptcy, that lawsuit has to stop forever.
The creditor can’t call or write you about the debt – even something informal that mentions you’re allowed to pay it but aren’t required to do so.
The creditor can’t get sneaky and hire a collection agency to try to get the money from you, either.
There are even some courts that say it’s against the bankruptcy laws for a creditor to keep reporting the debt as outstanding on your credit report.
If A Creditor Tries to Collect After Discharge
The bankruptcy law specifically states that creditors can’t collect once a debt is discharged. There’s no room for error on that point.
If a creditor or collector acting on behalf of a creditor tries to collect money from you once the debt is discharged, you may be able to file a lawsuit in bankruptcy court for damages and legal fees. The judge may also take additional actions against the creditor, depending upon how badly they behaved.
After all, the entire point of you filing for bankruptcy was to get relief from your debts. The court issued an order wiping out the debts, and that order is a serious one. If a creditor steps over the line, you can rest assured that the judge is going to be very unhappy about it.
The post The Ultimate Guide to The Bankruptcy Discharge appeared first on Shaev & Fleischman LLP.
First, let us explain what the definition of Wisconsin worker’s compensation is. In 1911, Wisconsin adopted a Workmen’s Compensation Act. According to the Wisconsin Department of Workforce Development, “Worker’s Compensation is a system of no fault insurance that provides wage replacement and medical benefits to employees for accidental injuries or diseases related to the employee’s work. The intent of the law is to require an employer to promptly and accurately compensate a worker for any injury suffered on the job, regardless of the existence of any fault or whose it might be… In return, the Act limits the amount that a worker can recover. Workers are only entitled to (1) certain wage loss benefits, (2) the cost of medical treatment, and (3) certain disability payments.”
If you have been injured at work and your Wisconsin worker’s compensation benefits are currently your only form of income, you are probably wondering what would happen to your benefits if you filed a Chapter 7 Bankruptcy. Bankruptcy is top of mind when a person has been injured, income has been slashed, and bills are piling up. You’re not alone in this line of thinking. Below are a few facts regarding Wisconsin worker’s compensation and Chapter 7 Bankruptcy.
1. You must choose whether to use state or federal exemptions in your bankruptcy. In Wisconsin, you may use either the Wisconsin state exemptions or the federal bankruptcy exemptions. You cannot mix and match federal and state exemptions. However, if you use Wisconsin’s state exemptions, there are a few federal ‘non-bankruptcy’ exemptions that you can use in addition to your Wisconsin exemptions. Consult with your experienced Chapter 7 Bankruptcy Attorney for assistance.
2. In Wisconsin, worker’s compensation benefits are considered income on the “means test” that determines whether you qualify for a Chapter 7 Bankruptcy.
3. Wisconsin worker’s compensation benefits are not considered an asset when filing a Chapter 7 Bankruptcy.
4. Wisconsin workers’ compensation is 100% exempt from confiscation during a Chapter 7 Bankruptcy. Wis. Stat. Ann. § 102.27, which reads:
“102.27 Claims and awards protected; exceptions.
(1) Except as provided in sub. (2), no claim for compensation shall be assignable, but this provision shall not affect the survival thereof; nor shall any claim for compensation, or compensation awarded, or paid, be taken for the debts of the party entitled thereto.
(2)
(a) A benefit under this chapter is assignable under s. 46.10 (14) (e), 49.345 (14) (e), 301.12 (14) (e), 767.225 (1) (L), 767.513 (3), or 767.75 (1) or (2m).
(b) If a governmental unit provides public assistance under ch. 49 to pay medical costs or living expenses related to a claim under this chapter and if the governmental unit has given the parties to the claim written notice stating that the governmental unit provided the assistance and the cost of that assistance, the department or the division shall order the employer or insurance carrier owing compensation to reimburse that governmental unit for the amount of assistance the governmental unit provided or two-thirds of the amount of the award or payment remaining after deduction of attorney fees and any other fees or costs chargeable under ch. 102, whichever is less. The department shall comply with this paragraph when making payments under s. 102.81.
NOTE: Par. (b) is shown as amended eff. 1-1-16 by 2015 Wis. Act 55. Prior to 1-1-16 it reads:
(b) If a governmental unit provides public assistance under ch. 49 to pay medical costs or living expenses related to a claim under this chapter, the employer or insurance carrier owing compensation shall reimburse that governmental unit any compensation awarded or paid if the governmental unit has given the parties to the claim written notice stating that it provided the assistance and the cost of the assistance provided. Reimbursement shall equal the lesser of either the amount of assistance the governmental unit provided or two-thirds of the amount of the award or payment remaining after deduction of attorney fees and any other fees or costs chargeable under ch. 102. The department shall comply with this paragraph when making payments under s. 102.81.
History: 1981 c. 20, 391; 1983 a. 27, 192; 1985 a. 83; 1989 a. 64; 1993 a. 481; 1997 a. 191, 237; 1999 a. 9; 2005 a. 443 s. 265; 2007 a. 20; 2015 a. 55.”
Contact An Experienced Wisconsin Worker’s Compensation Attorney
If you are in the middle of a worker’s compensation claim or are already receiving Wisconsin worker’s compensation benefits, contact Wynn at Law, LLC when considering a bankruptcy filing. Wisconsin bankruptcy laws are very complex and there are always exemptions to the rules. Our knowledgeable Chapter 7 bankruptcy attorney offers a free initial consultation. Set your mind at ease, by receiving answers to all of your important questions concerning Wisconsin worker’s compensation benefits and Chapter 7 Bankruptcy. Contact Wynn at Law, LLC to schedule your free consultation. You can reach us by phone at 262.725.0175 or by eMail via our website’s contact page. Wynn at Law, LLC has bankruptcy offices located in Salem, Muskego, Delavan, and Lake Geneva, Wisconsin.
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*The content and material on this web page is for informational purposes only and does not constitute legal advice.
On January 18, 2015, Fox Rothschild's Delaware Bankruptcy Litigation blog published a post "Caesars Bankruptcy: Illinois Bankruptcy Proceeding Stayed by Delaware Bankruptcy Court".
The article reviews a situation where creditors filed a petition for an involuntary chapter 11 bankruptcy on January 12, 2015 against Caesars Entertainment in the Bankruptcy Court in Delaware and then three days later Caesars Entertainment filed a voluntary chapter 11 case in the Bankruptcy Court of the Northern District of Illinois.
The Delaware Bankruptcy Court referred to this as a situation of "parallel proceedings." In its January 15, 2015 order, the Delaware Bankruptcy Court ordered that the proceedings in the Illinois Bankruptcy case be stayed, except for certain first day motions, pending "issuance of an order determining, if necessary, the venue in which the Debtor's chapter 11 case shall proceed."
Jordan E. Bublick - Miami Bankruptcy Lawyer - Kendall & Aventura Offices - (305) 891-4055 - www.bublicklaw.com
On January 18, 2015, Fox Rothschild's Delaware Bankruptcy Litigation blog published a post "Caesars Bankruptcy: Illinois Bankruptcy Proceeding Stayed by Delaware Bankruptcy Court".
The article reviews a situation where creditors filed a petition for an involuntary chapter 11 bankruptcy on January 12, 2015 against Caesars Entertainment in the Bankruptcy Court in Delaware and then three days later Caesars Entertainment filed a voluntary chapter 11 case in the Bankruptcy Court of the Northern District of Illinois.
The Delaware Bankruptcy Court referred to this as a situation of "parallel proceedings." In its January 15, 2015 order, the Delaware Bankruptcy Court ordered that the proceedings in the Illinois Bankruptcy case be stayed, except for certain first day motions, pending "issuance of an order determining, if necessary, the venue in which the Debtor's chapter 11 case shall proceed."
Jordan E. Bublick - Miami Bankruptcy Lawyer - Kendall & Aventura Offices - (305) 891-4055 - www.bublicklaw.com
On January 18, 2015, Fox Rothschild's Delaware Bankruptcy Litigation blog published a post "Caesars Bankruptcy: Illinois Bankruptcy Proceeding Stayed by Delaware Bankruptcy Court".
The article reviews a situation where creditors filed a petition for an involuntary chapter 11 bankruptcy on January 12, 2015 against Caesars Entertainment in the Bankruptcy Court in Delaware and then three days later Caesars Entertainment filed a voluntary chapter 11 case in the Bankruptcy Court of the Northern District of Illinois.
The Delaware Bankruptcy Court referred to this as a situation of "parallel proceedings." In its January 15, 2015 order, the Delaware Bankruptcy Court ordered that the proceedings in the Illinois Bankruptcy case be stayed, except for certain first day motions, pending "issuance of an order determining, if necessary, the venue in which the Debtor's chapter 11 case shall proceed."
Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
On January 18, 2015, Fox Rothschild's Delaware Bankruptcy Litigation blog published a post "Caesars Bankruptcy: Illinois Bankruptcy Proceeding Stayed by Delaware Bankruptcy Court".
The article reviews a situation where creditors filed a petition for an involuntary chapter 11 bankruptcy on January 12, 2015 against Caesars Entertainment in the Bankruptcy Court in Delaware and then three days later Caesars Entertainment filed a voluntary chapter 11 case in the Bankruptcy Court of the Northern District of Illinois.
The Delaware Bankruptcy Court referred to this as a situation of "parallel proceedings." In its January 15, 2015 order, the Delaware Bankruptcy Court ordered that the proceedings in the Illinois Bankruptcy case be stayed, except for certain first day motions, pending "issuance of an order determining, if necessary, the venue in which the Debtor's chapter 11 case shall proceed."
Jordan E. Bublick - Miami Bankruptcy Lawyer - North Miami & Kendall Offices - (305) 891-4055 - www.bublicklaw.com
According to an article in the Wall Street Journal, Money Beat, a new FICO credit score designed by Fair Isaac Corp.FICO +1.65% (FICO XD) is intended for those who have not been able to access financing due to their traditional credit score. This could those new to the credit system, like new graduates. The score will use data from: timely payment of cable, cellphone and utility bills. A full roll-out of this new credit scoring system is expected early in 2016.
New data not yet published by FICO show that the new score, called FICO XD, could help more consumers get approved for credit cards than the company previously thought. FICO found that 55% to 60% of credit-card applicants it reviewed now have the new XD score even though they were previously unscorable. FICO had estimated earlier that only about one-third of the credit-card applicants would get the new score.
Why this new credit scoring system? Because the lenders want to encourage as many people as possible to use credit, even if it extends that person beyond their means.
There are a few reasons for this new scoring system. This will allow those who have had a foreclosure or bankruptcy the ability to build credit. It will also open the door for new entrants to the credit system – students and those moving into the job market.
Between 35% to 50% of credit-card applicants who are now scorable have an XD score higher than 620, a minimum threshold that some credit-card issuers require for approval. The XD score runs from 300 to 850, the same range as traditional FICO scores, and a 620 on the XD scale equals a traditional FICO score of 620, says Jim Wehmann, executive vice president of scores at FICO.
Borrowers with an XD score who receive a credit card and pay their bills on time for at least six months will then receive regular FICO scores, making it easier to get other types of loans including mortgages.
Credit is like a medication. It is beneficial if used properly, but it is disastrous if used improperly. High schools and families rarely teach the young how to use credit. Instead, most of us leave the young to swim without a life preserver. They do their best, but do not realize that the lenders are like sharks, waiting 
in the shallows to pray on the innocent and naive. TV teaches our young that success equals fancy possessions, like overpriced cars and houses. No one teaches the goal of financial security.
Enough of my soap box. I challenge each of you to learn how “to use credit rather than credit using you”. Go forth and learn. Trust your common sense and not someone who is poised to make money from your innocent mistakes (over draft bank fees, late fees for loans, excessive interest on credit cards).
The post New FICO Score Opens Door for Many Could Not Qualify in the Past appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
According to an article in the Wall Street Journal, Money Beat, a new FICO credit score designed by Fair Isaac Corp.FICO +1.65% (FICO XD) is intended for those who have not been able to access financing due to their traditional credit score. This could those new to the credit system, like new graduates. The score will use data from: timely payment of cable, cellphone and utility bills. A full roll-out of this new credit scoring system is expected early in 2016.
New data not yet published by FICO show that the new score, called FICO XD, could help more consumers get approved for credit cards than the company previously thought. FICO found that 55% to 60% of credit-card applicants it reviewed now have the new XD score even though they were previously unscorable. FICO had estimated earlier that only about one-third of the credit-card applicants would get the new score.
Why this new credit scoring system? Because the lenders want to encourage as many people as possible to use credit, even if it extends that person beyond their means.
There are a few reasons for this new scoring system. This will allow those who have had a foreclosure or bankruptcy the ability to build credit. It will also open the door for new entrants to the credit system – students and those moving into the job market.
Between 35% to 50% of credit-card applicants who are now scorable have an XD score higher than 620, a minimum threshold that some credit-card issuers require for approval. The XD score runs from 300 to 850, the same range as traditional FICO scores, and a 620 on the XD scale equals a traditional FICO score of 620, says Jim Wehmann, executive vice president of scores at FICO.
Borrowers with an XD score who receive a credit card and pay their bills on time for at least six months will then receive regular FICO scores, making it easier to get other types of loans including mortgages.
Credit is like a medication. It is beneficial if used properly, but it is disastrous if used improperly. High schools and families rarely teach the young how to use credit. Instead, most of us leave the young to swim without a life preserver. They do their best, but do not realize that the lenders are like sharks, waiting 
in the shallows to pray on the innocent and naive. TV teaches our young that success equals fancy possessions, like overpriced cars and houses. No one teaches the goal of financial security.
Enough of my soap box. I challenge each of you to learn how “to use credit rather than credit using you”. Go forth and learn. Trust your common sense and not someone who is poised to make money from your innocent mistakes (over draft bank fees, late fees for loans, excessive interest on credit cards).
The post New FICO Score Opens Door for Many Could Not Qualify in the Past appeared first on Diane L. Drain - Phoenix Bankruptcy & Foreclosure Attorney.
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