Thursday, July 19, 2012

How important is my Credit Score?

Back in June, Attorney Trask spoke on a panel to address some of the public’s concerns regarding divorce, short sales, foreclosures and bankruptcies. The other members of the panel included a financial advisor and a mortgage broker. Of particular concern to the attendees was the harm to someone’s credit that could be caused by bankruptcy, foreclosure, or falling behind on payments on any number of consumer debts an individual may have.

The mortgage broker’s point was stark: “you are your credit score”. The observation garnered some mumbling from the crowd, but the point was clear: In the current economy where the cost of living exceeds an individual’s ability to save for a major (and necessary) purchase like housing, the only practical way for “the 99%” to acquire housing is to rent or purchase with a mortgage from a bank. However your ultimate ability to do so often comes down to a three-digit number maintained by any number of credit reporting bureaus.

A credit bureau is a private business that sells information – nothing more. The information that they sell is data reported to them by your creditors for things such as account and payment history, balances, late payments, and available credit. That information is churned through an algorithm to determine your “creditworthiness” and is expressed as a number. Depending on the agency, the scores can vary, but generally, a FICO credit score ranges between 300 and 850; a VantageScore score ranges from 501-990.

Your credit score is essentially a measure of your financial health that banks and other lenders use these scores to measure eligibility for mortgages, credit cards and a wide variety of other consumer loans. Some landlords check them to screen prospective renters, and some companies check credit reports before hiring a new employee. Low scores or problematic credit histories can mean higher interest rates or rejected applications.

Despite the importance that fair and accurate credit history reporting holds on an individual’s ability to obtain housing, employment, or other consumer loans, the various credit reporting agencies were under fairly lax legislative oversight. The Fair Credit Reporting Act required that all information contained in a report be “accurate”, but did little to specify any procedure to ensure accuracy. The FCRA primarily provides a mechanism to disclose the information contained in the report to a consumer – not to redress inaccuracies in the report itself. A consumer is entitled to a free credit report (but not a free credit score) within 60 days of any adverse action (e.g. being denied credit, or receiving substandard credit terms from a lender) taken as a result of their credit score.

However, there seems to be some change on the horizon.

In addition to the Fair Credit Reporting Act, Under the Wall Street Reform Bill passed on July 22, 2010, a consumer is entitled to receive a free credit score if they are denied a loan or insurance due to their credit score. Also, the newly-created U.S. Consumer Financial Protection Bureau (CFFB) has indicated an intention to provide additional federal oversight of credit reports in an effort to ensure accuracy, and will be able to conduct an investigation of the offending reporting agency in the event of a consumer complaint. These changes were discussed in our previous post as well:  Is the Government Monitoring your Credit Report?



Tuesday, July 17, 2012

Is the Government Monitoring your Credit Report?

Yesterday afternoon, the lead headline at DrudgeReport.com was that the U.S. Government is going to begin Monitoring Credit Reports. It would appear that, in typical Drudge style, the headline sought to create fear and distrust, implying that the government was concerned about who you were borrowing money from. This particular article remained up for only a short time, and was quickly taken down to address the more urgent matter: Democrats plan to use Batman Against Romney

An in-depth review of the Credit Report Article would suggest a more benign use of the new U.S. Consumer Financial Protection Bureau (CFFB). According to CFFB director Richard Cordray, beginning on September 30, 2012, the bureau seeks to extend oversight of the 30 largest credit reporting bureaus, which make up about 94% of the credit reporting industry in the United States. Such oversight would help ensure the accuracy of information contained in the reports, provide redress for individuals who have fallen victim to inaccurately-reported information, and provide “clarification as to what the Fair Credit Reporting Act requires of credit bureaus”.

Such an overhaul of the regulatory oversight would seem appropriate, given the importance of credit scores in today’s economy. Banks and other lenders use these scores to measure eligibility for mortgages, credit cards and a wide variety of other consumer loans. Some landlords check them to screen prospective renters, and some companies check credit reports before hiring a new employee. Low scores or problematic credit histories can mean higher interest rates or rejected applications.

A more accurate headline for Drudge to use would have been the actual headline: Consumer bureau to police credit reporting bureaus.  Given the immense power the credit bureaus have over your finances based on how they report your information, perhaps this is a good thing (inasmuch as any further government regulation can be a good thing).


Monday, July 9, 2012

US Trustees Release New Figures for Median Family Income


The United States Department of Justice twice per year releases new Median Family income figures for each state and territory.  These figures are used to calculate a debtor's eligibility to file for bankruptcy under Chapter 7 of the Bankruptcy Code. If your income is greater than the median income for your state of residence and family size, in some cases, creditors have the right to file a motion requesting that the Court dismiss your cases under Section 707(b) of the Bankruptcy Code.

It is ultimately up to the Bankruptcy Judge to decide whether the case should be dismissed. However, if your income exceeds the median family income then a presumption arises under part (a) of the Means Test that you do not qualify for a chapter 7 bankruptcy.

The Means Test calculation compares your average monthly income (as calculated over the last six (6) months) to the median family income in your state for a household of your size. If your average monthly income is lower than the median family income for your state of residence and family size, then you meet the means test and there is a presumption that you may file for Chapter 7 relief.

If your income is greater than the median income for your state of residence and family size, you still might meet part (b) of the means test after taking into consideration certain expenses as defined by the Bankruptcy Code and other deductions, including regular charitable donations (up to 15% of your income), school expenses, payments on 401(k)/IRA loans, and health Insurance.  If you are subject to this calculation an attorney can help you perform this task.

The Median Family Income for Massachusetts as of November 1, 2011 were as follows:

Family size 1: $53,496 per year
Family size 2: $64,174 per year
Family size 3: $80,337 per year
Family size 4: $99,067 per year

add an additional $7,500 per year for each additional household member.

These figures went up approximately $2,000 per category per year on May 1, 2012.

The Median Family Income for Massachusetts as of May 1, 2012 are as follows:

Family size 1: $55,185 per year
Family size 2: $66,200 per year
Family size 3: $82,873 per year
Family size 4: $102,194 per year

add an additional $7,500 per year for each additional household member.

Click here to learn more about The Means Test or use our Means Test Calculator.

To have an attorney help you with these calculations call 508.655.5980 to schedule a consultation or e-mail us here.


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