Consumer Credit and Bankruptcy
What is Credit?Credit is one way to buy goods and services and pay for them later. Good credit helps you borrow money now on your promise to repay it in the future.
Who can get credit?Federal law says that everyone has an equal right to credit. This does not mean someone must give you credit. It just means you cannot be denied credit because of your race, sex, color, religion, national origin, marital status, age (unless you are under 18), or because you receive public assistance.
What information does a company review to determine whether to give you credit?
- Place of employment
- Length of employment
- Place of residence
- History of paying debts
- Amounts owed to other creditors
What is a credit bureau?A credit bureau, or credit reporting agency, is a private company that gets information about your credit history. It keeps track of whether you pay your bills on time and gives you a credit rating. These credit reports contain financial and personal information and inform the lender whether you are a good or poor credit risk. The three major credit bureaus in the United States are Equifax, Experian and TransUnion.
NOTE: For additional information regarding consumer credit in the State of Oklahoma, visit the Oklahoma Department of Consumer Credit’s website at https://www.ok.gov/okdocc).
What rights do you have if credit is denied to you based on information provided by a credit bureau?You have the right to know the reasons for being turned down. If you are applying for credit for the first time and have no record at all, sometimes the lender may deny you credit. If you are denied credit based on information received from a credit bureau, the lender must inform you of the name and address of the credit bureau that supplied the report. You have the right to request a copy of your credit report.
If your credit file contains false, misleading, or out-of-date information, you can make the credit bureau check the problem and make the necessary corrections. If the credit bureau believes what it has stated is correct, you can file a brief statement telling your side of the story. This information must be put in your file. You also may ask for the names of companies who have requested or received a copy of your credit report.
How can you establish a good credit history?
- Get a job and do your best to keep it.
- Open a checking account and do not write "hot checks."
- Open a savings account and make regular deposits to it.
- Apply for credit at a department store.
- Make small purchases on credit and repay the debt as soon as possible.
- Pay your bills on time.
How do credit cards work?Credit cards let you buy goods or services on credit. There are two basic kinds of credit cards. First, many national and local department stores give credit cards for purchases of their goods at their own stores. Second, many banks issue credit cards such as VISA or MASTERCARD that allow you to buy goods on credit from any store that takes their card. Some companies provide these credit cards for free. However, some companies may charge an annual fee, and other fees may apply if you do not make payments on time.
The law requires that the lender tell you how much the card will cost you. The finance charges and other costs must be included in the annual percentage rate (APR) of interest, and the lender must give you this information. Different credit cards have different interest rates. There are two types of interest: simple and compound. With simple interest, you pay a set amount for a certain period of time. With compound interest, the interest is added back into the principal and you pay interest on the new amount (in other words, you pay interest on the interest). Check to get the best rate and terms possible.
What if you discover an error in your credit card bill?To avoid problems with your credit card bill, it is a good idea to save all of your receipts and go over each monthly statement carefully. Report any differences between your receipts and your monthly statements in writing to the credit card company as quickly as possible. Under federal law, the credit company has 90 days in which to respond, and you do not have to pay the disputed amount until the credit card company has conducted an investigation. Additionally, federal law prohibits the credit card company from reporting the matter to a credit bureau until the problem is resolved.
What if your credit card is lost, stolen or used by someone without permission?To protect yourself, you should keep a record of all credit card numbers and the telephone numbers of the companies with whom you have an account. Once you discover your credit card is missing, call the company immediately and then write the company about the problem. Once you have notified the company, you are not responsible for further charges made on the card. You are responsible for up to $50.00 per card on charges made before you notify the bank or store. There are also several private companies that will register all of your credit cards for a fee. If you lose your cards, you only have to contact that one agency and they will notify all of the other companies.
What happens if you cannot keep up the payments on a credit card?If you cannot make the payments, you should tell each creditor IMMEDIATELY and work out a payment plan. DO NOT stop making payments. This can badly damage your credit rating. Companies might be willing to give you longer time to pay off the debt by lowering your monthly payments.
NOTE: For further information on consumer protection, contact the Oklahoma Attorney General's Office Consumer Hotline at 405-521-2029. https://www.ok.gov/oag
Protecting your IdentityThe use of someone's personal information to commit fraud is a rapidly growing problem in America with millions of people falling victim annually. Victims of this crime can lose money and have their credit rating harmed. It is impossible to completely protect yourself from identity theft, and sometimes incidents can go undetected for long periods of time. However, you should take certain steps to make it difficult for anyone to steal your personal information. The following are simple identity theft prevention methods:
- Protect your personal information, particularly your social security number. Do not carry your social security card in your wallet.
- Shield your computer from viruses and spyware, and do not open e-mails from people or companies that you do not recognize.
- Check your credit reports once a year for any unusual or unauthorized activity.
BankruptcyBankruptcy is a process that allows individuals and families to discharge or reorganize the debts they owe to their creditors. There are five types of bankruptcy - Chapters 7, 9, 11, 12, and 13. Consumers typically file Chapter 7 or Chapter 13.
In both Chapters 7 and 13, a debtor is entitled to receive a discharge, or forgiveness, of all debts except those incurred by fraud, embezzlement, larceny, domestic support obligation, willful or malicious injury to the property of another entity, death or personal injury caused by the debtor's operation of a motor vehicle while intoxicated, or the debtor's failure to pay restitution under certain criminal restitution orders. An educational loan may not be discharged unless the debt imposes an undue hardship.
While there are many differences between a Chapter 7 and a Chapter 13 bankruptcy, key differences include:
- In a Chapter 7 bankruptcy, available, non-exempt assets will be taken and liquidated, or sold, and the money received used to pay off your creditors.
- In a Chapter 13 bankruptcy, a plan to pay off creditors using your wages is made and overseen by a bankruptcy trustee.
- A Chapter 7 bankruptcy generally last 60 to 90 days.
- A Chapter 13 bankruptcy can last up to 5 years.
- A person who has filed for bankruptcy cannot file again for 8 years.
Exempt Property - The debtor may keep property considered "exempt" in Chapter 7 or 13 bankruptcies. There are two different types of exempt property, federal and state. The Oklahoma exemptions allow the person filing bankruptcy to keep a homestead, no matter the value, which includes the home itself and up to 160 acres if it is not within a city or town. The Oklahoma exemptions also allow a person filing bankruptcy to keep a variety of personal property. The specific list of exempt assets under Oklahoma law is found within Title 31 of the Oklahoma Statutes and includes, but is not limited to the following exempt property: all household furniture for personal, family, educational or household use; clothing and wearing apparel up to $4,000; an automobile valued up to $7,500; firearms up to $2,000 in aggregate value; and an unlimited interest in retirement plans qualified for tax exemption or deferment purposes.
For more information, consult the Oklahoma Bar Association Bankruptcy and Reorganization Section.