Your credit score is a 3 digit number that indicates how disciplined you are financially. Credit score, also referred to as FICO score indicates your sense of financial responsibility. FICO is the acronym for Fair Isaac Corp, the company responsible for developing the methodology of credit scoring.

What are the 5 components of a credit score?

Your credit score is made up of 5 components. They are as follows-

• Payment history

Your payment history makes up 35% of your credit score. Usually the last 6 months are taken into consideration. It shows how regular you have been in making payments.

• Outstanding balance owed

The amount you owe accounts for 30% of the FICO score. There may be several instances when you have been making regular payments but your credit score is not what it should be. One of the possible reasons is that you may be having very high balances on credit lines.

• Credit history

Credit history makes up 15% of your credit score. Here history doesn’t refer to your payment habits. It evaluates your accounts and
keeps a track of the accounts that have been active and open.

• Credit types

10% of the credit score is made up of the types of accounts you have. A mixture of accounts is always desirable. It shows if you have different mix of accounts e.g. auto loans, mortgages, credit cards, installment loans etc.

• New Credit

Your credit score also indicates how frequently you opt for credit.

Experian no longer evaluates your credit score

Generally, the components that make up your credit score can be worked upon to improve credit rating. Your financial activities and monetary movements may cause upheavals in your credit rating. Earlier,the 3 credit bureaus namely, Experian, Equifax and TransUnion used to evaluate your credit score. However, effective February 2009, Experian stopped evaluating credit scores. You can still get your FICO score evaluated by Equifax or TransUnion. Credit scores usually range between 350 and 850 or 900. Higher is your credit score, the better it is. A higher credit score means you are in a favorable position to enjoy several financial benefits like lower interest rates etc.

With the prevailing financial crush, instigated by collapse of the real estate market, every other person seems to be in debt. It is not unknown that there are many debt help options. And the debt relief industry has been very active since the credit crunch.

Debt help options affect your credit score differently

Debt help options like debt consolidation, debt settlement, debt management plan, and self repayment plan affect your credit score differently. However, credit score is not irreversible and if you areable to exhibit a financially disciplined lifestyle, your credit score can soar eventually.

The Mortgage bankruptcy bill also referred to as “Conyers Bill” was enacted in the year 2007 by legislation. The Conyers Bill is controversial because it has brought about modification in the new federal bankruptcy laws that were introduced on 17th October 2005. The mortgage bankruptcy bill aims at helping homeowners retain their home ownership in the event they file bankruptcy.

The bill is applicable for homeowners who availed mortgage loans after January 1st 2000 and thereafter filed Chapter 13 bankruptcy. You have to provide evidence that your finances don’t permit you to make mortgage payments. As such, you are not in a position to pay your arrears. The main reason why homeowners file Chapter 13 bankruptcy is to save their homes from foreclosure. Chapter 13 bankruptcy allows you to enjoy debt relief by restructuring your debts. As such the bankruptcy courts can change terms of your existing mortgage.

The Conyers bill permits bankruptcy courts to lower the rate of interest, do away with excess fees. It also allows courts to modify the principal mortgage balance. By modifying the mortgage loan terms, you get an opportunity to get your finances back on track. And if you adhere to the new repayment plan, the lenders get back their cash in due course and do not initiate foreclosure proceedings.

The mortgage bankruptcy bill extends protection to the financially stranded homeowners. However, if you fail to abide by the payment plan worked out in Chapter 13 bankruptcy, the lender can take help of the bankruptcy courts. Under such circumstances, you can request the court to switch over to Chapter 7 bankruptcy. Once you revert to Chapter 7 bankruptcy, the foreclosure proceedings may begin. The mortgage bankruptcy bill protects homeowners but not all can avail the benefit. If you are not being able to decide what is best for you if you “fail out of bankruptcy”, consult a bankruptcy attorney who can suggest options that suits your needs best.

Filing bankruptcy is associated with a social stigma. This makes bankruptcy filings even more difficult. The probable reasons for filing bankruptcy include unemployment, increasing insurance costs, medical emergencies, mortgage debt and credit card debts etc. However, as per the prevailing market conditions, liquidity crunch is a prominent cause of filing bankruptcy. The number of people filing bankruptcy is on the rise and is expected to escalate in 2009.

Due to the liquidity crunch, people don’t have cash at their disposal. As such they are using credit card for meeting their basic needs too. Since the credit card companies have changed payment policies and reduced credit limits, the credit cardholders were not notified about the same. This created a lot of confusion among the credit cardholders. Majority of the credit cardholders were taken by surprise when they received their credit card statements.

When enquired, the credit card issuers stated that the change in the payment policies as well as lowering of the credit limits had to be implemented as a safety net to save them from further financial loss. As consumers found themselves getting deeper into debt, they find no other alternative but to file bankruptcy.

Due to increase in the number of bankruptcy filings, new federal bankruptcy laws were introduced in October 2005 to put a check on the number of people filing bankruptcy. However, the subprime mortgage crisis and the subsequent recession left consumers with no other option but to file bankruptcy.

Although the new federal laws were introduced, it failed to minimize the incidence of bankruptcy filings. The economic shortfall has left consumers in financial distress.

Statistical data showing projected bankruptcy filings for 2009

• Financial experts are of the opinion that the lower limit of bankruptcy filings will be 5,075 for every business day. As there are 250 business days in 2009, the number of bankruptcy filings may be 1,260,000. This figure is computed assuming that there will be no further growth in the rate of filing bankruptcy.
• However, it has been observed that rate of bankruptcy filings have escalated by 54% over the last 18 months. So, if we set an upper limit for bankruptcy filings in 2009, it shouldn’t exceed 7,600 bankruptcy filings per day. This comes to around 1,610,000 filings in 2009.

It is a fact that even of the bankruptcy filings in 2009 doesn’t exceed the upper limit; it won’t be before early 2011 or end 2010, when the economy will finally turn around to be referred to as a stable one.

For more information

Credit card debt relief – Credit card debt relief, debt settlement, consolidation and credit repair services. Get the best debt counseling and debt reduction at Credit Results USA.

Bankruptcy can be a good option for getting out of debt. Nevertheless, there are many aspects that need to be considered and that is best done with the help of a lawyer. If you are planning to file bankruptcy, before you embark upon this journey you need to have a sound understanding of the process. It is not necessary that you should have knowledge similar to a bankruptcy attorney but the concept should be clear. And you should know what you are heading for and what you are attempting at.

Bankruptcy is a federal court proceeding and by filing bankruptcy you get an opportunity to revamp your finances and attain financial stability. The most common types of bankruptcy filed include Chapter 7 and Chapter 13 bankruptcy.

In Chapter 7 bankruptcy also known as “liquidation bankruptcy”, your assets are liquidated so that your creditors get their money back. You should be aware of the exempt and non-exempt assets.

Previously, filing for bankruptcy was easy and you could declare yourself bankrupt at any point of time. The fed introduced the new federal bankruptcy laws in 2005. Since then bankruptcy filings have become tougher.

If you are planning to file Chapter 7 bankruptcy, you have to undergo a Means Test. In Means test, your monthly income is calculated and compared to the median income of a household in the state you are living. In case your monthly income is less than the median income, you are eligible for Chapter 7 bankruptcy or else your lawyer asks you to file Chapter 13 bankruptcy.

In Chapter 13 bankruptcy, you are not required to give away your assets for liquidation. Instead you are required to pay as per a new repayment plan. Your income should be good enough for you to make payments every month. You manage to get out of debt within 3 to 5 years.

These are the some of the basics of bankruptcy that it is important to develop awareness on. There are many websites offering vital information related to bankruptcy. It is your hard earned money and you should know how to reorganize your finances in a balanced and appropriate manner.

The debt help industry is doing brisk business and helping innumerable debtors in the process. Not that there are no debt help organizations offering debt help free of cost. These are usually referred to as the non- profit making organizations that operate with the help of donations. There are other debt help options you can opt
for if you don

Consumer credit counseling has assumed greater importance with the introduction of the new federal bankruptcy laws that were introduced on 17th October 2005. So, you will not be able to file bankruptcy unless you undergo a credit counseling session at least 6 months prior to filing bankruptcy. According to the new federal bankruptcy laws, in addition to credit counseling, you will also be required to take up a course in personal financial management.

However, you will not be able to take these courses for free.Credit counseling will attract a fee of USD$50. And the duration of the course should be at least 90 minutes. This has not been accepted unanimously though. There are many consumers that think that the credit counseling sessions may not help consumers especially when they are thinking of filing bankruptcy. It is quite likely that these debtors may have failed to derive benefit from other debt solutions and they are being compelled to file bankruptcy. As far as the cost of attending these pre-bankruptcy briefings are concerned, many debtors think that it adds to the financial burden of the debtors.

How will credit counseling help you?

It is expected that the pre-bankruptcy briefings will allow you to explore options that can help you to get out of debt. An efficient credit counselor will make you aware of the different ways of managing debts and handling your finances better. A credit counselor will show you how to manage your cash, will work out a budget for you, and assist you to keep track of bill payments. If required, the credit counselor can also work out a repayment plan for you so that you can catch up with your monthly payments.

Credit counseling can be done in the following manner –

1. In-person counseling
2. One-on-one
3. Over the Internet
4. Attending group classes
5. Over the telephone

The credit counselors that will be giving you pre-bankruptcy briefings need to be approved by the government. The curriculum must be approved by U.S. Trustee Program of Department of Justice. It is responsible for administering different aspects of the new federal bankruptcy laws.

According to the new federal bankruptcy laws filing bankruptcy has become very difficult as the qualifying criteria have become rigid.

The Federal Bankruptcy Laws determine how companies filing bankruptcy restore their financial stability and continue their operations. A company declaring bankruptcy can make use of Chapter 11 bankruptcy to “reorganize” its business operations and start earning profits again.

What happens when a company files bankruptcy?

The management of the bankrupt company continues its operation on a day to day basis. However, any major decision related to the company is taken by the bankruptcy court. Unless the bankruptcy court approves of a decision, the same cannot be implemented. On the other hand, if a company plans to file Chapter 7 bankruptcy, it will not be allowed to carry out its daily business operations. And a court appointed trustee will sell off the company’s assets to pay off creditors.

Why does a company select Chapter 11 bankruptcy?

Majority of the companies filing bankruptcy select Chapter 11 bankruptcy as it enables them to continue operations. This is true for most of the companies that are publicly-held. Chapter 11 provides opportunity for financial rehabilitation and a company filing Chapter 11 bankruptcy may either work out a plan so that it can start earning profits again or in some cases, get the assets liquidated.

What happens to stocks and bonds in corporate bankruptcy?

Although the company files bankruptcy, the stocks and bonds of the company continue trading. However, companies filing Chapter 11 bankruptcy don’t fulfill listing standards of NASDAQ and New York Stock Exchange. As such, the stocks don’t trade on these 2 stocks exchanges although stocks may continue trading on Pink Sheets or OTCBB or Over-The-Counter Bulletin Board. No federal law can prevent securities of a company from trading even if a company files bankruptcy.

What are the precautions you should take before investing in stocks of a company filing bankruptcy?

Investing in stocks of a company filing Chapter 11 bankruptcy involves a lot of risk. The probability of losing cash is manifold. Even if a company emerges financially strong after filing bankruptcy, the “reorganization” it undergoes usually makes the existing status of the equity shares null and void. This happens because the company usually pays the secured as well as unsecured creditors first before paying off the common stock holders.

How are ticker symbols of stocks named in Chapter 11 bankruptcy?

In case the company emerges financially strong after filing bankruptcy, it may have 2 different types of stocks. One set of stocks will be the ones that stockholders bought at the time of filing bankruptcy and the other type will be one that the company issues after emerging out of bankruptcy when it underwent “reorganization”.

In the former case, the 5 letter ticker symbol would end in “Q” indicating that the stocks were involved in bankruptcy proceedings and in the latter case, the 5 letter ticker symbol will end in “V” indicating that these are the stocks the company issued/authorized as a result of the “reorganization” plan.

If debts are allowed to pile up and they assume a proportion that is beyond repair, bankruptcy or foreclosure is inevitable for debtors. You will have to face foreclosure in case you have fallen behind on payments and you have several missed payments to your credit. Under such circumstances foreclosure is inevitable.

Bankruptcy can only delay the foreclosure process

When you file bankruptcy, you declare your inability to make payments for your debts. However, there is one advantage if you file bankruptcy and that is automatic stay. Automatic stay will delay the foreclosure process. However, in case the lender files for relief from the automatic stay, the foreclosure process can proceed. So, you can stop a foreclosure only if you are able to pay back your dues to the lender. If you are unable to make the mortgage payments, you have to be prepared to lose your home through foreclosure.

If you file bankruptcy and you are on the verge of facing foreclosure, your lender will have to suspend all legal actions against you. However, as mentioned above, if your lender files for relief from automatic stay, he can proceed with the same. So, filing for bankruptcy will not allow you to retain your home unless you make your mortgage payments.

Bankruptcy gives you more time to make mortgage payments

Since filing bankruptcy gives more time to make mortgage payments, you can catch up with your payments if the dues are not astronomical. And if you happen to file Chapter 13 bankruptcy, you get a repayment plan that allows you to make payments in a systematic and organized manner. So, you get another opportunity to pay off your mortgage. When you file bankruptcy, it can discharge some of the unsecured debts. So, if you have some cash at your disposal, you can make payment for your mortgage.

You can delay foreclosure only if you are eligible for filing bankruptcy. However, as per the new federal bankruptcy laws that were implemented in October 2005, you will be allowed to file bankruptcy only if you qualify. Earlier, it was easier for a debtor to file bankruptcy. Under such circumstances you will have to fore go your home.

How is your credit score related to foreclosure and bankruptcy?

Whether you file bankruptcy or face foreclosure, either way your credit score gets affected. If you file bankruptcy, it will remain in your credit report for a period of 7 to 10 years. Similarly, if you face foreclosure, the same gets recorded for a period of 7 years.

Every monetary movement you make or whenever you are using plastic money, all your financial transactions get recorded in the credit report. When you are applying for credit, either from banking or a non banking institution, your detailed financial information is sent to the credit bureau. Some of the information includes the status of your credit accounts; updates on your personal information e.g. change of address etc. The information is retained so that your creditworthiness can be determined.

Since majority of the lenders have adopted the method of “risk-based pricing”, your credit report has become increasingly important for lenders and also for yourself.

Importance of credit report

Importance of your credit report cannot be undermined because it determines what Annual Percentage Rate or APR you qualify for, whether or not you should be given credit and what terms and conditions should be applicable in your case. You can also prevent identity theft by keeping track of your financial behavior. A credit report is required by your employer, landlord, insurance carrier etc. to find out your financial vulnerability.

The fed has made it mandatory for the credit bureaus to provide a free copy of the credit report to all consumers at least once a year. Earlier the 3 credit bureaus namely, TransUnion, Equifax and Experian were responsible for providing credit scores. However with effect from February this year Experian has stopped providing credit scores. You may continue to receive credit scores from the other 2 credit bureaus.

Fair Credit Reporting Act or FACTA

The FACTA makes it mandatory for the 3 credit bureaus to provide you with a copy of your credit report for free. As per federal law, you are eligible for a free credit report under the following circumstances.

• If your application for credit has been turned down by your lender/creditor
• If the insurance carrier has refused your insurance application
• In case your employer refused to employ you in his organization.
• In case you are on a welfare program, you are entitled to receive a free credit report.
• If you are out of job and plan to get employed within the next 60 days, you can request for a free credit report.

You can request for the credit report within 60 days from the time you received the denial notice. It may be so that the free credit
reports you receive from the 3 credit reporting agencies or credit bureaus may not be the same. If you happen to find errors in your
credit report, report the same to the CRA or the credit reporting agencies.

Once you have filed bankruptcy, whether it is Chapter 7 or Chapter 13 bankruptcy, you are required to attend the 341 meeting where you gather along with all your creditors at the bankruptcy court. The 341 meeting derives its name from 11 U.S.C. 341, a section in the bankruptcy code. The meeting takes place around 20 to 40 days after bankruptcy is filed.

Although the meeting is where you get to meet all your creditors simultaneously, in majority of the cases, your creditors fail to turn up. However, even if the creditors are not present at the meeting, it doesn