How Long Does It Take for a Creditor to Sue Me?

In the most simple terms, a creditor may file a lawsuit once a default has occurred. That means, if you default on a loan, thereafter the creditor may seek a legal remedy. In reality, it’s a bit more nuanced.

First, consider the statute of limitations in California, which is four (4) years. That means, a creditor has up to four (4) years to file a lawsuit for damages. Not all creditors file lawsuits. In my experience, some of the more aggressive creditors like AmEx or Discover will bring a lawsuit in three (3) to six (6) months.

Also, consider the cost-benefit analysis. Ask yourself, what is the likelihood that a creditor will spend $2,000 to recover $500. That’s not to say that there aren’t a lot of rinky-dink collection lawsuits but perspective matters.

I see lawsuits soon after default and I see lawsuits right before the statute of limitations runs. It’s dependent on the creditor.

If you have question, please make an appointment to discuss your bankruptcy options with Modesto Bankruptcy Lawyer Brian Haddix.

Do I lose all my stuff if I file bankruptcy?

NO! The vast majority of my clients keep one hundred percent of their assets. The property a debtor keeps after bankruptcy is called “exempt” property. Anything that is not “exempt” is considered “non-exempt” property.

In bankruptcy, the debtor is allowed to keep a certain amount of value of “exempt” property. It it is not about keeping one car or one house, it’s all about value.

For example, the most equity in a house a family may protect (assuming under the age of 65 or not disabled) is $100,000.

For a summary of exempt assets, click on this link to see’s summary of exempt versus non-exempt property.

Contact our office for a free consultation to discuss your exempt versus non-exempt property issues.

How Long Does Bankruptcy Stay on My Credit Report?

Per the people at Experian (one of the big three credit reporting agencies) the bankruptcy public record is deleted from the credit report either seven years or 10 years from the filing date of the bankruptcy, depending on the chapter you filed.

Chapter 13 bankruptcy is deleted seven years from the filing date. Chapter 7 bankruptcy is deleted 10 years from the filing date.

Accounts Included in Bankruptcy

Individual accounts included in both Chapter 7 and Chapter 13 bankruptcy can remain on the credit report for seven years.

If an account was delinquent when it was included in the bankruptcy, it will be deleted seven years from its original delinquency date, which is the date the account first became late and was never again brought current. Declaring bankruptcy does not alter the original delinquency date or extend the time the account remains on the credit report.

How to Check Your Credit Report

If you haven’t already, I encourage you to get a current copy of your credit report. You can obtain your free report from each of the three credit reporting companies by accessing – under federal law you are entitled to a free and complete copy of your once every 12 months.

How soon can I buy a house after bankruptcy?

Buying a home after bankruptcy may seem like an impossible feat, but it’s actually not out of the question. Even if you have a Chapter 7 or Chapter 13 bankruptcy on your credit report, you can still buy a home after a certain period of time.

The exact length depends on several factors, including the type of bankruptcy and the type of home loan you’d like to get. Since lenders heavily weigh your credit score when evaluating your loan application, you’ll also need to re-establish that number after it’s been lowered by a bankruptcy.

But you don’t need to be overwhelmed by this process. With a little patience and the right knowledge, you’ll get back into a home you can call your own even with a bankruptcy in your past.

What types of home loan can you get after bankruptcy?

The process for buying a home after Chapter 7 bankruptcy, or even Chapter 13 bankruptcy, depends on what type of loan you apply for. Each one has a different “seasoning” period, which determines how long you have to wait until you qualify again.

Of course, you also have to meet the lender’s other basic mortgage requirements, so it’s important to know those as well. Here are three of the most common mortgage products available today, and how each one treats buyers with a bankruptcy in their past.

FHA Loans

An FHA loan is backed by the federal government and offers the chance to purchase a home to home buyers who have less than perfect credit. So how long after bankruptcy can you buy a house with this type of loan? The amount of time you have to wait to qualify depends on what type bankruptcy you filed.

For a Chapter 7 bankruptcy, you must wait a period of at least two years from the date the action was discharged (not filed). Some lenders might require a longer period, but two years is the legal minimum.

The waiting period for a Chapter 13 bankruptcy is a bit more complicated.

You’re technically allowed to apply for an FHA loan while still paying on this type of bankruptcy, as long as your payments are verified and have been consistently paid for at least a year. You’ll also need a court trustee’s written approval and a written explanation of the bankruptcy included in your loan application.

In addition to meeting the seasoning period for your type of bankruptcy, you must also meet the basic requirements of an FHA loan. You can purchase a home with as little as a 3.5% down payment if your credit score is 580 or higher. If your score is 579 or lower, you must pay 10% of the home’s purchase price as your down payment.

You do have to pay a mortgage insurance premium if you have less than 20% equity in the home, which is rolled into your monthly payments. The annual premium you pay ranges from 0.45% to 0.85% of the loan amount and depends on the amount of equity and the length of your mortgage term.

VA Loans

VA loans are offered to active members of the military and veterans. They include a number of benefits including no down payment and competitive interest rates. Luckily, you can still apply for a VA loan even after a bankruptcy. The waiting period is the same as an FHA loan: a minimum of two years from the discharge date.

Keep in mind that you still have to qualify for all the other aspects of the loan. Most lenders require a credit score of at least 620 and a debt to income ratio of no more than 41%. You’ll also need to obtain a Certificate of Eligibility that proves your military status.

There is no mortgage insurance attached to a VA loan. However, most borrowers do have to pay a funding fee based on your down payment amount and the number of times you’ve used a VA loan. Not all lenders finance VA loans, so make sure you work with one who has specific experience in this niche since there are some rigorous guidelines involved.

Conventional loans have some of the strictest underwriting standards and they become even more stringent when there’s a bankruptcy involved. The waiting period is four years from the discharge date of a Chapter 7 bankruptcy. For a Chapter 13, it’s two years after the discharge date, unless it was dismissed without a discharge, in which case you’ll have to wait a full four years.

You’ll need to use that time to work on rebuilding your credit and saving up your cash in order to qualify for a conventional loan because most lenders require a 640 credit score and a large down payment.

You might be able to qualify with a lower credit score if you can put down a larger amount of money. It’s always best to call several lenders to compare eligibility requirements and interest rate offers.

How does bankruptcy affect your credit score?

Even if you’ve waited the appropriate seasoning period to apply for a home loan, you still need to repair your credit in order to qualify. Whether you’re applying for an FHA loan, a VA loan, or a conventional loan, you’ll most likely need your score to be somewhere between a 580 and 640.

On the plus side, a Chapter 7 filing automatically wipes out your debt, so your “amounts owed” category can rebound pretty quickly. This also helps your debt to income ratio when it comes time to apply for a loan.

But a bankruptcy can cause your credit score to drop as much as 240 points, and it takes time to bring it back up. How long? A Chapter 7 filing remains on your credit report for ten years while a Chapter 13 stays there for seven years.

There are a few things you can do right away to begin repairing your credit score. The first is to pay all of your bills on time each month so that you can rebuild your payment history.

You should also keep your oldest credit accounts active, even if you don’t use them. The length of your credit history accounts for 15% of your score, so this is a simple way to refrain from losing any more points. Buying a house after bankruptcy is by no means unattainable, it just takes patience and diligence to rebuild your credit score while waiting out the seasoning period.

Can you buy a house even after a foreclosure?

Purchasing a home after a foreclosure is a bit trickier than a bankruptcy because you’ve shown poor ability to repay on the exact product you’re hoping to purchase again. But nothing is impossible; you’ll just have to wait a little bit longer than you would with a straightforward bankruptcy. Here’s how it works.

If you’re seeking a conventional loan, you can expect a seven year wait period from the actual date the foreclosure was filed (it stays on your credit report for the same amount of time). FHA loans only require a three-year wait period.

However, if you can prove that the foreclosure was caused by a situation out of your control, you might be able to shorten the seasoning period for both types of loan.

Examples of this include a substantial period of unemployment, a major illness, or a divorce. To shorten a conventional loan wait time from ten years to three years, you’ll also need at least a 10% down payment or 90% loan to value ratio.

What if you had both a bankruptcy and a foreclosure?

You can still get a mortgage even after having both a bankruptcy and a foreclosure; you just need to clarify at which point each seasoning period begins.

This can be a little tricky since some of the factors in both cases overlap with one another. Really, different lenders can view things in different ways, but generally speaking, the seasoning date should begin when you are no longer responsible for the debt.

So if your foreclosure was discharged with a Chapter 7 bankruptcy, your seasoning period would last for two years following the discharge of the bankruptcy, not from the date of the foreclosure. It’s always best to review your personal credit report with your lender to ensure you’re interpreting it correctly.

Going through a bankruptcy or foreclosure might seem like a huge block in the road, but it’s not one that is insurmountable. You still have the opportunity to purchase your own home after just a bit of waiting and working.

Review your personal situation to determine which type of mortgage would be best for you and how long you have to wait before you can apply for one. Then take careful steps to repair your credit to ensure your application is approved and you get the best interest rates available.


What happens to my co-signer after bankruptcy?

A cosigner is someone who has signed up to guarantee payment of a debt if the primary debtor fails to make payments. A cosigner is also called a codebtor in bankruptcy. Co-signers are usually friends or family members with good credit who are added to a loan to provide added assurance to the lender that the loan will be repaid if the primary borrower (who wouldn’t qualify on their own) fails to make all payments. A bankruptcy by one cosignor affects the rights of the other cosignor.

Because of the personal relationship shared by most codebtors, many people who are considering filing for bankruptcy are concerned about the effect their bankruptcy will have on their cosigner. This is a very valid concern, because the cosigner has agreed to be responsible for the full amount of the debt if the primary debtor defaults on the loan. That means that if one co-debtor files for bankruptcy, the other is on the hook for the full payment.

Additionally, the cosigner must be listed as a creditor in your bankruptcy case. This is so they have notice of your bankruptcy, but also so that any claim they may have against you for defaulting on the loan is wiped out and does not come back to haunt you after you receive a bankruptcy discharge.

Bankruptcy Options

Chapter 7: Unfortunately, the cosigner gets no protection in Chapter 7 bankruptcy. While the person filing bankruptcy will have their personal liability wiped out by the Chapter 7, the cosigner will still be on the hook for the full amount of the discharged debt. Sometimes, the debtor in Chapter 7 may continue to pay a certain debt such as a home loan or auto loan so they can keep the house or car after bankruptcy. In such cases, the impact on the codebtor may be minimal. However, in many cases the debtor in Chapter 7 debtor stops paying the debt. In such cases, it may make sense for the cosigner to file for bankruptcy as well, especially if the debt is for a large amount such as a mortgage.

Chapter 13: In Chapter 13, however, the cosigner gets some protection from the creditor and also can have their liability removed completely if the debt is paid for through the Chapter 13 repayment plan.

In Chapter 13 bankruptcy, the cosigner is protected by the codebtor stay, which prevents creditors from contacting them and trying to collect the debt. This stay applies if: 1) the cosigner is an individual (as opposed to a corporation or partnership), 2) the cosigner did not become liable for the debt in the ordinary course of business, and 3) the debt must be a consumer debt; that is, a debt primarily for personal, family, or household purposes.  If the debt meets these criteria, the automatic stay will apply unless the creditor petitions the court to have it lifted.

The creditor can argue that the stay should be lifted if: 1) your cosigner (rather than you) received the consideration for the debt (i.e., your cosigner received the property the funds were used to purchase); 2) your Chapter 13 plan does not include payment of that debt; or 3) the creditor’s interest would be irreparably harmed by the stay (for example, if the bankruptcy filer might dispose of the property or if the property is rapidly decreasing in value). If the Court agrees and lifts the stay, then the creditor can attempt to collect the debt from the cosigner as if no bankruptcy had been filed.

If the Chapter 13 plan provides for the debt to be paid in full during the plan (usually 5 years) then the cosigner will not be liable for the debt once a discharge enters in the bankruptcy case. However, if the debt is not paid for in full, then the creditor can still attempt to collect the debt from the codebtor if the remaining balance on the debt is not paid following the Chapter 13 discharge. The creditor may also proceed against the cosigner if your Chapter 13 case is dismissed or converted to Chapter 7.

Because most cosigners are people you have a close personal relationship with, it is important to know how your bankruptcy will affect them. Having the advice of a bankruptcy lawyer can ensure that you cosigner issues are dealt with properly.

No Relief from Foreclosures on the Horizon

Notices of Default filed in Modesto in the past 12 months.

Notices of defaults have spiked in the Central Valley. The chart to the right is only for Modesto but it represents a similar trend throughout the worst hit counties in the Central Valley. The increase is partly due to the end of the year-long “freeze” in foreclosures because of the “robo-signer” scandal. As you may recall, in their rush to foreclose defaulted loans, lenders were filing false foreclosure notices and fraudulent legal actions. In the immediate aftermath, some lenders stopped foreclosing but the pace soon picked up when lenders realized that Washington wasn’t going to do anything about it. Since then, the only sanction has been lawsuits by the Attorney Generals of several States against the lenders. Settlement negotiations have been going on for six months with no resolution in sight since lenders are demanding immunity from future prosecution.

Throughout all of this, despite all the hype, there remains no effective help for upside down homeowners who are frustrated and angry at unfulfilled promises such as the HAMP Program which remains mostly ineffective at reducing loan costs to overwhelmed debtors. Instead, lenders seem to prefer foreclosure even if that results in less of a money recovery for their investors. As reported on, Notice of Default filings in California are up 69.5%. In Sacramento, August NOD’s were up 85% over July. Much of this increase is Bank of America. Market watcher reported that BofA foreclosure filings in California increased 200% between July and August!

Some have voiced their concern with BofA’s survivability as they continue to deal with the incredible losses from their Countrywide purchase. In July BofA reported an $8 billion 2nd quarter loss and there’s billions more of losses yet to go. A BofA spokesman stated that even this increase may not be enough. BofA appears committed to forcing as much bad debt off their books as they can as quickly as they can. Meanwhile, lawsuits continue to mount. Insurance giant, AIG, filed a $10 billion lawsuit against BofA in early September; and FNMA is reportedly about to file a $20 billion plus lawsuita against BofA and others.

What all of this means is that we’re in for more troubling financial times as lenders try to rebound from the deep recession caused by the collapse of the real estate bubble. Added to this is continued economic instability in California, nationally, and in fact world-wide all of which is causing buyers and investors to question whether now is the time to buy. California Association of Realtors (CAR) is predicting that sales will remain flat through 2011 and that property prices will fall 4%. They further project a small, less than 2%, price growth in 2012. CAR’s chief economist, Leslie Appleton-Young, stated: “the best decription of what can be expected next year is the market will be bouncing along the bottom.” … “One of the biggest uncertainties in today’s market is what are the negative equity homeowners going to do going forward and how big a percentage will end up in the foreclosure process”.

So the bottom line is insecurity on the economy and continued efforts by lenders to clear defaulted loans off their books. This means more short sales, more foreclosures and more REO properties. For some, this will spell an opportunity to acquire good properties at a low price with cheap loans. For others, it will be wait and see how low the markets go. None of this is good news for upside down owners hoping to save their homes. Looking forward to a 2012 Presidential election years, it is not at all likely that any further relief for homeowners can be expected before 2013.

Will I go to jail (in California) if I don’t pay my debts? What about if I file bankruptcy?

NO!  You will not go to jail if you do not pay your debts.  And you will not go to jail if you file bankruptcy. Prior to the mid 19th century debtors’ prisons were a common way to deal with unpaid debt. In 1833 the United States abolished Federal imprisonment for unpaid debts, and most states outlawed the practice around the same time.

Six states (Arkansas, Arizona, Illinois, Indiana, Minnesota, and Washington) allow debt collectors to seek arrest warrants for debtors in default if all other collection methods have failed.  In California, a bench warrant may be issued if the debtor fails to appear for an Order for Examination (“OEX”).  An OEX is a method creditors may use to enforce a judgment.  To have an OEX issued, the person you owe money must have already obtained a judgment which means you should have had notice of the lawsuit.  It is not, however, uncommon to not have notice.

The OEX is an order signed by a judge ordering the judgment debtor to appear to answer questions concerning their finances (assets, debts, income, and expenses).  If the judgment debtor fails to appear, the judge may hold the judgment debtor in contempt of court and issue a bench warrant.  It is the contempt of court for failing to obey a court order (“you must appear in court on such and such date”) which forms the basis of the bench warrant not the underlying debt.

Modesto bankruptcy attorney Brian Haddix can explain exactly how creditors may enforce their judgments against you and advise you as to your options on how to deal with your creditors.  Attorney Brian Haddix offers creditor and debtor services including debt settlement, debt litigation, and Chapter 7 and Chapter 13 bankruptcy.

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Bank of America Signs onto Principal Reduction Program

Bank of America announces in this press release that it has signed on to the principal reduction component of the Keep Your Home California program, which uses federal funds reserved for the 2008 rescue of the financial system to help homeowners behind on their mortgages.

According to the press release, Keep Your Home California’s Principal Reduction Program is part of a $2 billion, federally funded effort to help hard-hit families remain in their homes and ease the California foreclosure crisis. Bank of America has been engaged in a pilot of the principal reduction program since February, and is now moving into full participation to provide assistance to more qualified homeowners facing hardship. The bank is one of the largest servicers of single family mortgages in California, serving more than 2.2 million home loans.

For full details on the program, click here.

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Debt is the Slavery of the 21st Century

While this is a particularly strong statement, this article written by Brian Carr is relevant and thought provoking.  As Mr. Carr succinctly explains, debt means you owe someone and you must work to pay off that debt.  He points out that when you owe massive debt, the creditor owns you.  You are not earning money for yourself to be used to further your interests but rather satisfy the obligation you owe.  The creditor seeks every disposable dollar you earn to pay off the principal and interest that is accruing on that debt.  And the longer you take to pay it off by making minimum payments, the more, it seems, you owe (and the more money the creditor earns off of you).  The feeling is like a bottomless pit.

There are options and bankruptcy is one of them.  Modesto bankruptcy lawyer Briann Haddix can advise you on all of your options under the bankruptcy code.  For example, Chapter 7 allows a debtor to discharge their debts and retain certain “exempt” property.  In California, a debtor may keep up to $26,775 in value of vehicles, toys, money in bank accounts, and collectibles.  In the overwhelming majority of California bankruptcy case, debtors keep all of their property.

In Chapter 13, debtors keep all of their property but repay a portion of their debts over three years or five years.

Can I keep my house after bankruptcy?

The short answer is yes, but you must be able to make the payments.  In general, a Chapter 7 bankruptcy is not going to order a debtor to move out of their home.  The bankruptcy is not going to remove a debtor’s name from title to their house.  The only effect the bankruptcy will have is to discharge the debtor’s personal liability to repay the loan.  The bank (or lender) retains the lien (a.k.a. the deed of trust) against the property.  If the debtor does not or cannot make the payments, the bank will foreclose.  If you have late mortgage payments at the time you file a Chapter 7 bankruptcy, you will still have to come current on the payments either by paying the past-due amounts (the “arrearages”) or by negotiating a loan modification with the lender.

In Chapter 13, if you want to keep your home and you have late mortgage payments, you propose a Chapter 13 repayment plan that pays off the late mortgage payments over 36 or 60 months.  During this time, you also make the monthly mortgage payment.  Depending on which district you file in (i.e., the Eastern District of California), will determine whether you pay your monthly mortgage payment directly or whether you pay it though your Chapter 13 plan.

Modesto bankruptcy attorney Brian Haddix can explain and advise you as to what option is best for you.

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