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					                       CREDIT AND DEBT MANAGEMENT
What does your credit rating cost you?
Your credit score is a number based on the information in your credit file that shows how likely you are to pay a
loan back on time. This score helps a lender determine whether you qualify for credit or a loan and what interest
rate you’ll pay. Credit bureau scores are often called “FICO scores” because most credit bureau scores used in the
US are produced from software developed by Fair Isaac and Company. FICO scores are provided to lenders by
the three major credit reporting agencies:

Even though there are many additional factors that lenders and credit companies use to determine your credit
worthiness and interest rates, the FICO score will most likely carry a lot of weight in the decision. Each company
has its own strategy and there is no specific “cutoff score”. However, there is a typical range that is used by most
companies. Here is an example below of a typical mortgage lender’s scoring criteria.

              Your Score Interest Rate         Monthly Paymt
                720-750          5.66%            $ 867
                700-719          5.79%            $ 879
                675-699          6.33%            $ 931
                620-674          7.48%            $1,046
                560-619           8.53%           $1,157
                500-559          9.29%            $1,238

You can see in this example how improving your credit score could save you thousands of dollars in interest
charges per year! With a 30 year fixed, $150,000 mortgage, the payment for a consumer with almost perfect credit
is $867. Lower that rating by 200 points and the same mortgage costs $4,452 dollars more per year!

Understanding and Improving your FICO Credit Score
The quickest and easiest way to improve your score is to get a copy of your credit report from each of the credit
bureaus and correct all mistakes. Common errors include negative information that is more than seven years old
(10 years for bankruptcies) and accounts that are listed more than once. Even just listing your phone number and
cleaning up old addresses and employment can add a few more points. Listed below are more tips on how to get
the most out of your score. Note that the percentages listed are “approximate” and amounts may vary from
person to person in relevance to other factors considered in your score.

Payment History: Approximately 35%
 Credit cards, retail accounts, car loans, finance accounts, mortgage loans or any other type of installment loan
  where you make regular payments
 Public record and collection items such as bankruptcy, foreclosure, wage attachments, liens or judgments.
 How late your payment was, how much was owed, how frequently you were late, how recent the late
  payments were and how many there are.
Keys to Improving your Score
 Regardless of your past, start paying on time today. Although negative information can stay on your
  credit report for 7 years (most bankruptcies as long as 10 years), by paying overdue bills and making on time
  payments, most lenders recognize your efforts to better your score. Major credit problems, such as a
  bankruptcy, lien, lawsuit or judgment, are considered quite serious; however, older or smaller items will count
  less. If your credit report does not contain negative public records, filed within the last two years you most
  likely will start to see an improvement in your score.
  This is true for minor issues as well. For example, Jim’s credit score was 632. In the past year, he had made
  4 payments 30 days late and 1 payment 60 days late. We found Jim had the money to pay his debts but had
  simply misplaced a bill or forgot to mail the payment. We advised Jim to set up automatic debit for each of
  his accounts. After one year of on time payments, Jim’s score increased to 680 and when Jim hit 24 months
  of on time payments his score jumped to 701.
 Paying specific accounts on time can weigh heavier than others. For example, having a real property account
  paid on time will almost always raise your score.
 Contact your creditors at the earliest sign of trouble. You will be surprised how many creditors will work
  with you if you need an extra few days “grace” or just accidentally missed a payment. If you need longer
  term help, it does not hurt your score to request a temporary lower payment or a short term revised mortgage

Outstanding Balances: Approximately 30%
 The amount owed on all accounts
 The amount owed on DIFFERENT types of accounts
 Having different types of credit accounts
 How many accounts have balances
 How close you are to maxing out your credit line
 How much of an installment loan (ex: auto) is still outstanding
Keys to Improving your Score
    Pay Down your Debts Owing a great deal of money on many accounts could signal that you are
     Pay Specific Debts First. Some debts are considered “better” than others. For instance, mortgage debt
        (and property ownership) is considered more positive than credit card or installment debt. Therefore, if
        you had to choose, paying down your car loan or credit card debt may be better for your score than
        making extra payments on your mortgage.
       What you DON’T have is important too. If you don’t have open installment loans, such as auto loans,
        on your credit report, this positively influences your score because lenders feel you are more likely to pay
        your other bills without the fixed monthly payment attached to an installment loan.
        Even if you pay off your credit card balance every month, your report may still show a balance.
        The total balance on your last statement is usually the amount that will show on your credit report.
       Think twice before closing unused credit card accounts. This may actually lower your score.
        Consider Jan’s story. She owed a total of $5000 on credit cards and had an available total credit line of
        $10,000. This meant Jan had used only 50% of her available credit. But Jan decided to close her paid off
        accounts that held $3500 in credit line. Now Jan’s credit report shows that she has $5000 debt compared
        to only $6500 in available credit. This means she has used over 77% of her available credit and could be
        considered close to “maxing” out her credit. Jan should have waited until her balances on the other cards
        were paid down before closing the paid off accounts.
       Don’t open new card accounts you don’t need just to increase your available credit. This could
        backfire and actually lower your score.
       Concentrate on increasing the cushion between your credit balance and your credit limit. If one or
        more of your accounts has a balance that is close to your credit limit, it may lower your score. For
        example, if you have an extra $500 per month to pay toward debts, it may be more beneficial to spread
      that $500 out to bring down the balance on SEVERAL credit card or installment accounts rather than
      paying off one specific account. Getting your balance to under 30% of your credit line is a great start
     Pay off debt instead of just moving it around. Transferring high interest balances to a lower or 0%
      rate won’t hurt your score.

Length of Credit History: Approximately 15%
 How long your accounts (overall) have been established.
 How long specific types of accounts have been established.
 How long it has been since you used specific accounts.
Keys to Improving your Score
        Calculate your average account age. New accounts will lower your average account age. For
          example, let’s say you have a credit card account for 1 year and a car loan for 2 years. Your average
          account age is 1.5 years.
         Don’t open a lot of accounts too fast. For instance using the above example, if your current average
          account age is 1.5 years and you open two new credit card accounts today, your average account age
          will drop to 9 months.
         Adding just one credit card account keeps your average at 1 year.

New Credit: Approximately 10%
 How many recent accounts you have.
 How long since you opened a new account
 How many recent (within 12 months) requests for credit (inquiries) are on your account.
 If you have had past credit problems, this portion of your score will look for efforts to re-establish credit.
Keys to Improving your Score
    Inquiries stay on your credit report for up to two years, but your FICO score considers only the past 12
      months and can usually distinguish between a search for a single loan and a request for several new credit
      lines. Make applications for only what you need and be choosy in who you allow to pull your credit.
     More than 10 inquiries will usually raise a red flag. A quick and easy way to improve this portion of
      your score is to check your credit report and dispute any unauthorized or multiple inquiries.

Types of Credit: Approximately 10%
 This score considers your mix of credit cards, retail accounts, installment loans, finance company accounts
    and mortgage loans.
 There isn’t a magic number and you don’t necessarily need even one of each.
 The ‘mix’ can be more important if you don’t have a lot of other information to base your score on.
Keys to Improving your Score
    Lenders usually view credit histories with at least two bankcard accounts as very good indications of how
        responsible you are in paying your debts. Additionally, bankcard accounts carry more flexible terms than
        installment loans, and this generally increases your ability to meet your other debt obligations.
Repairing Credit
The first thing you will need to do is get a copy of your credit reports. The Fair Credit Reporting Act (FCRA)
requires each of the nationwide consumer reporting companies – Equifax, Experian, and TransUnion – to provide
you with a free copy of your credit report, at your request, once every 12 months. The three nationwide consumer
reporting companies have set up a central website, a toll-free telephone number, and a mailing address through
which you can order your free annual report. Here are two ways to order your report:

           Go to and follow the directions to request online
           Call 1-877-322-8228 and request the Annual Credit Report Request Form. Then
           mail it to:      Annual Credit Report Request Service
                            P.O. Box 105281
                            Atlanta, GA 30348-5281

     Can I get this free annual report by contacting the credit bureau directly?
Not for this particular report. Do not contact the three nationwide consumer reporting companies individually.
They are providing free annual credit reports only through You may order your reports
from each of the three nationwide consumer reporting companies at the same time, or you can order your report
from each of the agencies one at a time. The law allows you to order one free copy of your report from each of the
nationwide consumer reporting companies every 12 months.

     I see a lot of advertisements for free reports, are these all the same thing?
No. Be cautious ― you could end up paying money, giving your personal information to the wrong parties or just
wasting your time. Only one website is authorized to fill orders for the free annual credit report you are entitled
to under law –

    What information do I need to provide to get my free report?
You need to provide your
    Name
    Address
    Social Security number
    Date of birth
    Previous address if you have moved in the past two years
    To maintain the security of your file, each nationwide consumer reporting company may ask you for
       some information that only you would know, like the amount of your monthly mortgage payment.

     How long does it take to get my report after I order it?
If you request your report online you should be able to access it immediately. If you order your report by phone,
your report will be processed and mailed to you within 15 days. If you order your report by mail using the Annual
Credit Report Request Form, your request will be processed and mailed to you within 15 days of receipt.

    How long does negative information remain on my report?
Here are some key points to remember about negative entries:
    A negative report stays on your credit file for seven years from the date of the last activity.
 Chapter 7 bankruptcies remain on your account for 10 years.
 Out of date reports may not automatically be removed. Be sure to notify the reporting agency of any
    items more than seven years old.
 Just because you pay off an old debt, it won't necessarily be removed. In fact, the "pay off" could be
    considered "new activity" and may start the seven year clock all over again.
 You may submit, to each of the credit reporting agencies, up to a 100-word written statement that must be
  added to your credit report explaining a negative item. You may want to include the circumstances under
  which you defaulted on the loan such as job loss, illness or any other extenuating circumstance in the
 It is a good idea to check your credit report once a year to avoid any unwanted surprises at the car
  dealership or mortgage loan officer's desk.
 Any incorrect information should be disputed right away.
 Just as important, make sure the car note you finally paid off and the personal loan you paid off early are
  included on your report. You want to be sure all positive information is reported.

How do I correct something on my report?
 Contact the credit reporting agency that issued the report and dispute the incorrect or inaccurate
    information. You may dispute an item by phone, mail or online.
   Be prepared to provide your Social Security number, date of birth, current address, company name of the
    disputed item (found on your credit report), account number of the disputed item and reason for your
    dispute. Examples of reasons for a dispute include: the item does not belong to you; current balance is not
    correct; the account is closed or the account has been paid off.
   The Fair Credit Reporting Act provides that the agency must investigate the disputed item(s) and correct
    or delete the inaccurate information (usually within 30 days). The agency is required to give you a written
    report of the investigation and a copy of your report if the investigation resulted in any change.
   You can also report disputed credit report items directly to the creditor. As a result of your dispute, the
    creditor can not report the information to an agency without including a notice of your dispute.
   Once you have notified the creditor of the error in writing, it may not continue to report the information
    until the situation has been researched.
Credit Dispute Letter
Date:    ____________________________________
Name: ____________________________________
Address: ____________________________________

Equifax Credit Information Services, Inc.                           TransUnion LLC Consumer Disclosure Center
P.O. Box 740241                                                     P.O. Box 1000
Atlanta, GA 30374                                                   Chester, PA 19022

National Consumer Assistance Center
P.O. Box 2002
Allen, TX 75013

Re: Credit report error
Dear Sir or Madam:

I have discovered inaccurate information on my credit report maintained by ____________________________
                                                                            (state name of reporting agency)
The report is in my name ____________________________________ My Social Security number is

__________________________________ Please find a copy of my credit report enclosed containing the
mistaken data. I have highlighted the errors. Specifically, the following information is wrong:

_________________________________ _________________________________________________________
Information Inaccurately listed               Correct Information

_________________________________ _________________________________________________________
Creditor / Account Number                     Reason for dispute

_________________________________ _________________________________________________________
Creditor / Account Number                     Reason for dispute

_________________________________ _________________________________________________________
Creditor / Account Number                     Reason for dispute

Please investigate this matter with the creditor in question and you should find there is an error. When that is
confirmed, please remove this error from my credit report.

In addition, please make this letter a permanent part of my credit record. If you have any questions about my
request or the credit information in question, please do not hesitate to call me at work or home phone number,
depending upon when you would prefer to discuss the matter.
Thank you for your prompt attention to my request.

Enclosure: credit report
Debt and Credit Strategies and Solutions
Make a Payment Plan
1. Make a list of all your bills and the payment due date
2. Add all your unbilled expenses such as food, entertainment or charitable contributions (list how much you will
need by week)
3. Separate everything into three categories
         Fixed – The payment is the same each month such as mortgage, car or insurance payments
         Variable - Expenses that change such as food, electric or entertainment
         Revolving – Credit cards and store accounts

Fixed                                              Variable
Amount                  Due Date                   Amount                  Due Date
$________               ___________                $________               ___________
$________               ___________                $________               ___________
$________               ___________                $________               ___________
$________               ___________                $________               ___________
$________               ___________                $________               ___________
$________               ___________                $________               ___________

Revolving Credit
Amount                  Due Date
$________               ___________
$________               ___________
$________               ___________
$________               ___________
$________               ___________
$________               ___________

4. Take your total monthly income and list the amount according to each payday.
Income                 Date Received
$________            ___________
$________            ___________
$________            ___________
$________            ___________

5. Now match your incoming dates with your payment dates.
If you see that most of your bills are due on the 1st and your paychecks are on the 7th and the 14th - contact all your
creditors and see who will change the due date.
6. Create a spreadsheet and break down your payments into weekly schedules. Use a colored highlighter to mark
each one as it is paid.

Reducing Credit Card Debt
Rate your interest credit from the highest interest to the lowest. List the customer service number. Include the
total balance, minimum payment , the interest rate and annual fee if applicable.
Card              Balance       Min Paymt Interest           Ann Fee         Cust. Service
___________       $_______ $_______            ______ $______ _______________________
___________       $_______ $_______            ______ $______ _______________________
___________       $_______ $_______            ______ $______ _______________________
___________       $_______ $_______            ______ $______ _______________________
Now choose the strategies that work best for you.

Call each card issuer and ask them to lower your interest rate. Ask them to decrease or drop any extra fees. Ask
about any special offers like lower rate balance transfers. Don’t be discouraged if they say “No.” Hang up, call
back and ask for a supervisor or the new offers department. If you still can’t get a better deal, mark that card and
try again next month.

Let’s take a look at some examples:

Net Take Home      $3435
Fixed               -1857
Variable           - 810
$3000 @ 21%        - 60
$1400 @ 18.9%      - 28
$4000 @ 17.2%      - 80
Extra                $600

Based on the numbers above there is an additional $600 each month that is available to apply towards your debt
reduction. That leaves $200 for reserves or minor emergencies and $400 to apply to the credit card debt.

Reduce Debt Fast
Typically, if your main goal is to reduce debt as quickly as possible, you would apply any extra monies to your
highest interest rate card first. That would mean that you make the minimum payments on the two lower interest
cards and spend the remaining payment of $460 on the 21% card until it is paid off completely.

Then you take the $460 that you had been paying to the 21% card and add that to the payment on your next
highest interest rate card and keep repeating until all the cards are paid off. Master Card until that balance is
eliminated. Using this strategy you could pay off the above revolving debt in just 17 months!

Reduce Debt – Improve Credit Rating
Credit card companies may be more willing to lower their rates when they see you have ample spending room
left. Some issuers will cut your credit line when you are paying only the minimum.
Using the same numbers from the example above, if you paying minimum payments only, it will take 120 months
(10 years!) to reach a $0 balance on all three cards. If you divide the extra $400 equally between all cards each
month – you can pay these off in just 23 months! (less than 2 years!)

Credit FAQ
     I have always heard: ‘Stop borrowing, get out of debt and stay out!’ But you say ‘Money is cheap,
borrow as much as you can for as long as you can!’ What is the right strategy?
Both. There is actually "good" debt and "bad" debt. Good debt produces cash flow or more value in the
long term, bad debt doesn't. For example, a home mortgage gives you tax advantages and an
appreciating asset. Taking a loan to purchase a business or other income producing commodity, such as
stocks bonds or other investments would all be considered good debt. If you take out a low interest loan
to pay off a high interest one, that's O.K., too.

If the item you are purchasing will not give you additional value then it is bad debt. Number one on the list
would be a new car. Not only will the vehicle depreciate in value immediately, but you are adding to your loss by
paying interest on it. Ditto for clothes and most other disposable items you put on your high interest credit card.
If you ever tried to sell a "brand new" item at a Garage Sale, then you know how quickly a $100 dress goes down
to $5. Another problem with "bad debt" is the affect it has on your credit. If your debt to income ratio goes above
30% then you are in the danger zone. Your strategy should be: If it won't make you money or go up in
value, pay cash for it or don't buy it.

    My brother added my name to his credit card account and had a credit card issued to me as
an authorized user. Eight months ago, I asked to be removed from this account and have my card
canceled and the company did that. Recently, my brother missed a few payments and now the
card issuer is reporting that against MY credit. Can they do that?
Generally, co-signers and authorized users are both reported to the credit
reporting agencies. One possibility to consider is that if you were an authorized
user when the debt was created and that debt is still a part of the current
outstanding balance, you may be jointly liable until that balance is paid off.
However, since you were removed from the account the company shouldn’t continue to
report the account as active under your name. While the old history may remain, you
need to send a letter to the credit card company asking them to remove any
reference to this account that occurred after the cancellation date and to stop
reporting the current history. Also, even if there were no late payments, this
account could still affect your debt-to-available credit ratio.

     How does my wife’s debt and credit affect mine?
You both have separate credit histories. If you have joint accounts, only those
joint accounts will affect each of your credit histories. On joint accounts you are
both responsible for the full balance, regardless of who actually made the charges.
If she stops paying on joint accounts (including after divorce or death), the
creditors will look to you for full payment. However, unless you live in a
community property state (Arizona, California, Idaho, Louisiana, Nevada, New
Mexico, Texas, Washington, Wisconsin) you are generally NOT responsible for each
other’s individual debts.

     What is the minimum credit score required for a credit card?
Every lender has different cut-offs. However, usually once you get below a score of
620 - 650 it becomes more difficult to get an unsecured card.

   Will getting a “secured” credit card help me increase my credit
Yes. A secured card can help build or rebuild credit if it is reported to all three
major credit bureaus on a regular basis — and you pay on time. Many banks or lenders
offer secured cards and it pays to shop around. Orchard Bank is one popular choice (1-800-724-4964 or These cards require a security deposit, which is generally placed
in an interest bearing account to serve as collateral in case of default by the
cardholder. When shopping for a secured card, be sure to ask these key questions:

   Do you report to all three major credit bureaus?
   How long does it take to qualify for an unsecured card?
   Do you change an annual fee?
   How much interest will my deposit earn?
   What kind of account does the deposit have to be in?
 How can I make the best use of a secured card to build my credit rating?
 How much are your interest rates and other fees?

DEBT AND CREDIT: Stopping Foreclosure
Early intervention is the key. Notify your lender as soon as you know or even think you are going to have a
problem making your payments. That means if you get a pink slip today, call the mortgage company tonight.

Lenders don't want to foreclose on houses. Working out an alternative will usually cost thousands of dollars less
than full foreclosures and home repossessions. It also keeps lenders from having to suffer through the foreclosure
process, which in some states can drag on for a year and a half or more.

When a borrower misses a payment, the servicer will usually offer several options to cure the mortgage:

Repayment Plan. A repayment plan provides a little break for borrowers with short-term financial problems,
such as a brief illness or an unexpected repair. Generally, the borrower misses a payment and the lender allows
them to "catch up" by making a "payment and a half" for the next two months.

For example, Brian had missed three payments and owed late charges and legal fees for a total of $5300. The
servicer still arranged a repayment schedule. Brian paid $1600 of the delinquent amount upfront, and then the
balance was divided into 8 monthly payments of $463 each.

Loan Modification. Loan modifications go a step further and are designed for customers who can't afford
repayment plans. In a modification, the servicer actually adjusts the terms of the loan to make it affordable. This
may lengthen the amortization schedule or lower the interest rate to cut the monthly payments, or roll the past due
amount into the loan and re-amortize the new balance so the borrower can pay the additional debt in
installments. By modifying the loan, the borrower avoids the hassle and additional closing costs typical of a

For example, when Bill and Joanne divorced, Joanne got the house. However, without Bill's income, Joanne was
unable to make the $1,800 mortgage payment. The original 30 year, $200,000 mortgage had a remainder of
$120,000 with 14 years to go. The lender modified the loan by amortizing the $120,000 over a new 30 year term.
The payment was reduced to $920 and Joanne was able to keep the house.

In another example, Diane’s situation was similar but in her case, the lender simply added the delinquent
payments and fees onto the end of the loan. Due to illness, Dianne missed four payments and with penalties owed
a total of $9600. She had 23 years left on her 30 year mortgage. The lender deferred the delinquent amount
($9600) to the end of her mortgage. Diane’s payments stayed the same buy she would make an additional 6
months of payments.

Pre-foreclosure sale. Death or divorce, long term job loss or a career change may signal more serious action.
Most lenders will agree to help the borrower get rid of the house via a pre-foreclosure sale. Get the house on the
market quickly. If it's getting late or you just don't want to advertise your plight, check out the classifieds. You
will find many investors who specialize in purchasing pre-foreclosures. Most are able to close quickly and may
even be able to help you negotiate with the bank for the best sale. Be prepared: You may have to settle for a lot
less than the "best market price" for your home. Don't be insulted. Stay focused on achieving your goals; No
foreclosure, no deficiency judgment, and maintaining your credit so that you can purchase another home.
Short Sale. In dire circumstances the lender may accept a "short sale". In such sales, the lender lets the
borrower sell the house for less than the outstanding loan amount, takes the proceeds and forgives any remaining

Hard Money Loans. Remember, there is always a solution; it just may cost you more. When you weigh the
options and are sure you can hold on ―if you can just get a little breathing room ―consider refinancing via a
"hard money" loan. While they have very high rates and fees, the loans, usually from private individuals, can
provide the couple extra months needed to make things work. Most lenders will be more than happy to take cash
no matter how close it is to the foreclosure sale. The borrower can usually just pay up and go back to business as

Deed In Lieu of Foreclosure. If there is no buyer at any price, the lender won't compromise and there is no
loan anywhere  the borrower may consider just giving the property back. With a "deed in lieu of
foreclosure" the borrower deeds the property to the lender and just walks away. The borrower gives up all rights
to the property and loses any chance of recouping equity. However, there will be no foreclosure, no deficiency
judgment and very little or no credit damage.

No Easy Solution. A friendly lender willing to work with you today may change their tune tomorrow if it suits
their bottom line. It's nothing personal, it is the job they get paid to do. You must look out for yourself. Try to get
agreements in writing. Remember, at the same time that the lender’s loss mitigation rep is trying to work out
saving your house, the lender’s foreclosure and legal department is trying to foreclose as quickly as possible.

HUD Foreclosure Help Resources links by State:

HUD-approved housing counseling agencies
HUD-approved housing counseling agencies are available to provide you with the information and assistance you
need to avoid foreclosure. As part of President Obama's comprehensive Homeowner Affordability and Stability
Plan (HASP), you may be eligible for a special Making Home Affordable loan modification or refinance, to
reduce your monthly payments and help you keep your home.

HUD National Servicing Center (NSC): (888) 297-8685
Are you having difficulty working with your FHA lender or do you feel the lender is not responding to your
questions? Whether you are attempting to prevent your home from going into foreclosure or just do not
understand why your mortgage payment changed, HUD's National Servicing Center may be able to help you get
the answers you need from your lender.

HOPE NOW 888-995-HOPE (4673)™
HOPE NOW is an alliance between counselors, mortgage companies, investors, and other mortgage market
participants. This alliance will maximize outreach efforts to homeowners in distress to help them stay in their
homes and will create a unified, coordinated plan to reach and help as many homeowners as possible. Find a list
of participating lenders on the home page link listed above.

Making Home Affordable
If you don’t have computer access, you can get information on this program through the HOPE NOW hotline:
888-995-HOPE (4673)
Refinancing: Many homeowners pay their mortgages on time but are not able to refinance to take advantage of
today’s lower mortgage rates perhaps due to a decrease in the value of their home.
Modification: Many homeowners are struggling to make their monthly mortgage payments perhaps because their
interest rate has increased or they have less income.
Find out if you are eligible at:

Assistance for Military:
The Department of Defense (DOD) offers the Homeowners Assistance Program (HAP) to eligible service
members and federal civilian, including non-appropriated fund, employees. The program is authorized by law,
and administered by the US Army Corps of Engineers (USACE) to assist eligible homeowners who face financial
loss when selling their primary residence homes in areas where real estate values have declined because of a base
closure or realignment announcement. The American Recovery and Reinvestment Act of 2009 (ARRA)
temporarily expands the HAP to assist service members and DOD employees who are wounded, injured or
become ill when deployed, surviving spouses of service members or DOD employees killed or died of wounds
while deployed, service member and civilian employees assigned to BRAC 05 organizations, and service
members required to permanently relocate during the home mortgage crisis.

Personal bankruptcy generally is considered the debt management option of last resort because the results are
long-lasting and far reaching. People who follow the bankruptcy rules receive a discharge — a court order that
says they don’t have to repay certain debts. However, bankruptcy information stays on your credit report for 10
years. Still, bankruptcy can offer a fresh start for people who have gotten into financial difficulty and can’t satisfy
their debts. There are two primary types of personal bankruptcy: Chapter 13 and Chapter 7. Each must be filed in
federal bankruptcy court.

Chapter 13 allows people with a steady income to keep property, like a mortgaged house or a car that they might
otherwise lose through the bankruptcy process. In Chapter 13, the court approves a repayment plan that allows
you to use your future income to pay off your debts during a three to five year period, rather than surrender any
property. After you have made all the payments under the plan, you receive a discharge of your debts.

Chapter 7 is known as straight bankruptcy, and involves liquidation of all assets that are not exempt. Exempt
property may include automobiles, work-related tools, and basic household furnishings. Some of your property
may be sold by a court-appointed official, trustee, or turned over to your creditors. You must wait 8 years after
receiving a discharge in Chapter 7 before you can file again under that chapter. The Chapter 13 waiting period is
much shorter and can be as little as two years between filings.

Both types of bankruptcy may get rid of unsecured debts and stop foreclosures, repossessions, garnishments,
utility shut-offs and debt collection activities. Both also provide exemptions that allow people to keep certain
assets, although exemption amounts vary by state. Note that personal bankruptcy usually does not erase child
support, alimony, fines, taxes, and some student loan obligations. Unless you have an acceptable plan to catch up
on your debt under Chapter 13, bankruptcy usually does not allow you to keep property when your creditor has an
unpaid mortgage or security lien on it.

Before even filing for bankruptcy, no matter what the chapter, you must get credit counseling from a government-
approved organization within six months before you file for any bankruptcy relief. A state-by-state list of
government-approved organizations can be found at Also, before you file a Chapter 7
bankruptcy case, you must satisfy a “means test.” This test requires you to confirm that your income does not
exceed a certain amount. The amount varies by state and is publicized by the U.S.Trustee Program at

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