Part 3 of the Law & Finance series
00:05 S1: Welcome to the Legal Learning Podcast. I’m Jolene, your host. With the Legal Learning Center, I help pre-law students and law students with their legal journey. Today’s guest is an attorney who will walk us through all things credit, can you apply to law school if you just filed bankruptcy? Can you get loans? How can you improve credit? After our chat, I’ll give you my top takeaways, but first, a quick word from our sponsor, financially free aspiring attorneys, is a course with over $300,000 in money saving tips. If you wanna go to law school, but I don’t wanna pay for it. Visit the legallearningcenter.com/financially-free. For more information on how you can avoid law loans.
00:52 S2: I am Dave Johnson, practiced law for about 15 years before retiring and work in real estate. I’m a real estate broker in Pennsylvania, I have a website called credit monkey.pro
in which I talk mainly about credit debt, credit scores, financing, and a little bit of real estate with it. My website is not your typical sign-up for credit cards here, it’s much more unique in what you find… You’ll find very little of the information I put,
anywhere else.
01:26 S1: Well, tell me first, why is credit important?
01:29 S2: Everything in your life credit effects, whether you… What cell phone plan you can get whether you have to pre-pay a cell phone plan, whether you have to put a deposit down to get your next iPhone or your next Samsung it affects your car insurance, and it effects… It affects everything you do, because everybody now online, hits a button, there’s your credit score, and they don’t even have to pull a hard credit score, they can pull a soft credit score, and you’ll never know that they’ve pulled it and…
S1: Where do we get a copy of our own credit score?
S2: Oh, well, there’s some jokes about that, but I’ll tell you the first is if you go for a loan and the loan officer leaves her room, take the credit report and stick it in your pocket, ’cause it’s better than anything you can get for free. Then there are websites available that use various other credit score, things like Credit Karma, you can get a credit report from them, it’s not easy to read, but you can… And then there’s a website sponsored by the government called annualcreditreport.com, and you can get a credit report from there once a year, does not have a score on it though, does not have a number, just tell you everything that’s there, of course.
02:44 S2: While you’re there, you can pay the money and get it and get a credit report, you can call three major credit reporting agencies and they’ll gladly sell you on an email… Your credit score, the other way to get a report easily is if you get the calling for credit, if you’re declined for credit, you’ll get a letter in the mail saying why you were declined, and they’ll typically tell you that a credit bureau said no, that your credit score was too low, and theyll either name a credit bureau, so if they name Equifax, you can actually write a letter, get on their website and you can request it, they have to send you a free credit report, now they don’t have to give you one that has a credit score, but they have to send you a free credit report so you can see what’s on it, and if they don’t specify a particular credit reporting agency, then you can go to all three and request one from all three, and they’ll send it ’cause you just say, I don’t know who it was, they didn’t specify which one, it just is my credit report, so you can get the credit report and look at them.
03:48 S2: What I do when I’m working with somebody is I have a friend who is a mortgage officer, I slip for the $35 for the cost to print credit report, and she prints it for me and sends it to me, but they’re the easiest ones to read… They’re called tribe pools, and they have all the three major credit reporting agencies, and they’re all lined up
04:10 S1: Are there differences between the three.
04:12 S2: There’s always is because not every creditor reports to all three agencies and all three agencies have a slight variation on the rating system one might have add one minus two, and the formula is a trade secret. The other thing, it really depends on what you’re doing, because there is one scoring system for credit card, another for a car, a different FICO scoring system for a house, so it really depends… I think there’s… Last time I looked, it was 38 different possible between the three of them, credit numbers, you can get all of the same sport, really, depending on what you’re looking for, there’s also different versions of the FICO system scoring model available, so you’ve had… All of that…
04:58 S1: Is there a way, if we’re having bad things on our credit reports or bad credit scores are an easy way for us as individuals to fix that…
05:07 S2: Yes, it’s all paperwork. Whether you do it online, I guess I’m old school, I don’t do it online. I fall back to a letter, that way I have documentation for everything once you do an online complaint or dispute, you click Send, and unless you do a screen print, it’s gone, so you don’t exactly have everything, so I do it in a letter, you can dispute almost anything, what a credit report… That may or may not be the best thing to do. For instance, if you hire a credit repair agency, even one who’s well-known law firm that does it, advertise is nationwide, what they do is they just take everything hit on your credit report and send a dispute letter to the credit bureau, so 30 days later, your credit score has jumped up to here and you were great, and then you watch it slowly come down. So their hope is that the creditor doesn’t respond timely, and if they don’t respond within 30 days of the dispute, the law says, that credit reporting agencies must remove it from your credit score, however, I’m finding now that everything’s computerized 30 days is nothing, ’cause they have most large credit issuers have a room full of people just clicking buttons and generating responses, and it doesn’t have to be a great response, it’s just…
06:28 S2: Yeah, he has his money, and that’s good enough to suit them. So there’s other ways, usually debt validation, lots of what I call, lots of different ways to say, Let’s make a deal, and then there’s just some things that there’s no legal way around it.
06:47 S1: So how do you know when it’s time to hire someone to help you improve your score…
06:51 S2: Okay, the bankruptcy attorneys coming out of me, if somebody comes in to me and somebody suing them for a credit card debt, my first question is, how many more of these are you gonna get and… Well, I will probably get two or three right away, I usually tell them, Let’s file bankruptcy, it’s faster and easier… If somebody’s coming to me with a whole lot of old debt, bad debt that is not high dollar amounts, then let’s just work with your credit score, but if you’re on the edge of being sued by three or four or five companies, it’s gonna be cheaper and faster to recover from it because it’s easier to start from nothing and still have the bankruptcy or in your credit, ’cause after two years, it doesn’t mean anything even though it’s on your credit, where if you get into one of the credit management companies, it’s gonna… take you, five years, to clean up your credit score, and then all that stuff that can come off in the first year, it’s still gonna be on your credit report for another seven years. Sometimes the bankruptcy attorney says, this is faster and cheaper. Let’s just do this.
07:55 S2: That really depends. If you have to buy a car next week, maybe we have to do some other things, if you’re gonna buy a house six months from now, we better not, so if you have two years or three years, you’re not going to have to use great amounts of credit and you’re not gonna get sued and load credit repair.
08:11 S1: Now, how does that impact the bankruptcy and the credit repair issues applying to law school.
08:16 S2: You’re not gonna learn anything about credit in law school, you can be a bankruptcy attorney and you know nothing about credit, and really all you want them to do is give you their check for whatever the going rate is for bankruptcy and you’re gonna file bankruptcy and they’re gonna… What matters is why somebody’s coming to you for help with credit, with bankruptcy because they need to buy a house within the next year, I’m probably gonna steer them away, if at all possible, from a bankruptcy because they’re not gonna be able to buy house, it’s gonna be typically two years, unless you already have a house that has an FHA mortgage and you surrender that in bankruptcy, then it’s two years from the time the Sheriff deed or if you have a state where it’s a deed and trust is released. So usually your two to three years to buy a house after bankruptcy, if you do everything right to restore your score, basically what happens with the bankruptcy, everything is going… Everything except a student loan, and if you’re doing a Chapter 13, taxes can get thrown in there, it’s all going, so you’re gonna have a fresh credit report, so all you have to do is re-build your credit, which is usually far easier and far faster than what it is to remove all the debt…
09:29 S1: Is there certain types of student loans that can be waived in the bankruptcy
09:33 S2:When people will come into my office and you look at bankruptcy, and you go to your biggest problem is student loans, and they’re not gonna go away. And the only way to make these things go away is to live in a cardboard box under the freeway, because otherwise they’re not gonna go away. A Judge in federal court in New York last year said that we had been interpreting the test in the bankruptcy code wrong. The way he interpreted this test was, student loans can be discharged if there’s no reasonable chance of ever paying them, the purpose of bankruptcy is a fresh start, and if you can’t get rid of student loans… A large force of America will not have a fresh start, so waiting for the appeals court to hear whether or not they’re gonna let the new interpretation of the test to be accepted the way the judge in New York has it. We’ll see if that happens. I’m coming out of retirement and opening up, just a law practice, just doing bankruptcies for people in student loan debt, because it’s like 25% of the people are in default of their student loans…
10:41 S2: It’s incredible to me, it’s the next be a financial thing that’s gonna happen in America.
10:46 S1: It really is very scary, even those who are not in default, there are so many who are struggling to make those payments and aren’t moving forward, I think in life, because they are making those payments.
10:58 S2: You wanna give a boom to the economy, let people discharge their loans in bankruptcy, the economy would boom because they’d have so much more money, you won’t have to keep interest rates at almost zero to keep the economy moving.
11:12 S1: Now, if we have a student who is returning to law school later in life, so they’ve already worked a bit, if things go wrong during that time off and they file for bankruptcy and decide, Okay, I wanna go to law school, is that going to impact their application or their ability to get loans for law school.
11:29 S2: Always disclose it, if the bankruptcy was three years old or older, if it’s a chapter seven, probably not gonna hurt after two years, it may or may not hurt, ’cause you have two types of loans in a law school you have the guaranteed loans from the government, they don’t care what your credit looks like, you can have a credit score of three, then there’s a private loan, those… It will matter. Sally Mae has some programs, if you’ve had bad credit but, you’re currently up-to-date on everything beyond that, the private loans won’t happen, guarantee one will pay tuition or most of Tuition and books, if you have money saved or you have a spouse who’s going to work and you can live on that money or your savings, and then you’re okay, but if you have to borrow money to live on, you’re gonna be in a real pro… Real problem.
12:26 S1: How do the credit agencies look at the student loans, the private and the federal, and how does that affect your score
12:32 S2: And then what you’re looking at credit cards… Who cares? Is a credit score good? They’re just looking at a number… For the most part, they are looking at a number and they’re just looking at the score, the issue comes down to… Housing is a whole another story. Especially a mortgage. There’s a front and back-end equations on a mortgage, front-end basically looks at how much you’re able spend on a mortgage, the back end looks at what the total cost of your mortgage versus what you have… So if you have a student loan payment of $400 a month, when you take your income, they take that $400 a month, 100% off of what you’re able to spend on a mortgage. So $400 in today’s market is $50,000 for a house. So if you’re a young law student or a lawyer and you make $75,000 year, which might be a lot in some areas, and you take your gross income, you subtract all your recurring monthly bills, the minimum payment, and then you also subtract payment for your student loans, you may only have $30,000 left, and you multiply that by 045, and that’s what… Your principal interest, taxes and insurance.
13:45 S2: Must be, you’re gonna be living in a mobile home and a cheap car itd just doesn’t leave a lot of money, now you’re gonna say, I’m gonna put these things on a hold where I don’t have to make any payments. Well, then what mortgage companies do is they take your entire mount or your loan, and depending on the company that… You either use 1% or 2% of the total amount. And they consider that as which your monthly payment is, so you’re still stuck with that $400 or $35,000 a month alone. It just marks everything up. When we bought our first house after law school, we were fortunate that my wife made good money, we put the house in her name, I didn’t even put mine on it, and we put my student loans on there, it made what we were eligible to buy for a house less than $100,000, just no way around it. And if they’re in default forget about getting any government back loans, because you’re not gonna be eligible for FHA, USDA or any of the other government loans because you’re behind. If there’s any chance that the bank is going to sell your loan, they’re not gonna get around it because there’s a national database that has every single student loan that’s in default, some of them go back 20 years, and they know that’s in default, and if you’re looking for an FHA or a USDA loan, you’re not gonna be able to go get a government back on a VA loan forget it.
15:23 S1: I’ve seen this time and again with myself, my friends, where you’re practicing for about five years or so, and suddenly your tax person says, Okay, you need to buy a house, you make too much money for tax purposes, you need to buy a house, but we’re all in the same boat of, well, I’m paying $1500, $2000, whatever you… If you have a spouse with also student loans, you’ve got all this money going to the student loan, you barely have enough to even begin saving for a down payment, much less buy now, and then if you live in a place like LA, New York, San Francisco, it just compounds, because one, the down payments are basically the same size as a house in the middle west, and then you still need to buy the house, and so it just is this huge ball that is a mess and it all wrapped up together where I make too much money. So to get a tax benefit, I’m supposed to buy, but I have all these student loans that I’m paying a mortgage already too, so I can’t afford a mortgage. Do you have any recommendations?
16:19 S2: I will give you one thing to think about, I won’t make a recommendation without that, what if you can refinance those student loans a whole lot cheaper now and you can refinance a for a good credit at three and a half, 4%. Here’s the problem, and it may not mean anything to somebody 28 graduating, but for somebody like me who graduated in his late 40s, a government-guaranteed student loan is not part of your estate, so as long as they left my student loans as a government-backed student loans I could die and my wife would not ever have to pay them, my estate would not have to pay them, they just go away, and the government guarantees if I refinance those student loans and get the lower interest rate and drop my monthly payments, which makes me eligible and maybe makes them more affordable to pay ahead on they now become a part of my estate, so if I’m at the court house, I’m reading the judge’s order and I step off the curb and a bus hits me. Now, my spouse, my estate, must pay that, so it becomes a whole another issue. So I thought about taking a mortgage, an investment property, and then just walk away and file bankruptcy and, so I’m gonna lose the house.
17:37 S2: I’m also gonna lose all the debt… One of the reasons why it took us so long to get out of the last recession, I was up in 2006. On the bankruptcy code change, you can file bankruptcy and the student loans would go away and you would really start fresh, the people who were making the big money, but the high income professionals are paying for 20 or 25 years on these loans, they lost their house, they lost their job, but they still had to continue to pay student loans, so you’re sort of stuck, what do you do, and other than trying to re-finance it without having it list as a student loan is the only way I could see out. Yeah, I think I still have about $15,000 and I graduated in 2005. The reason why I never refi, I don’t want it to be part of my estate.
18:25 S1: Are there things that students can do before they go to law school to try to and keep their credit good. But to avoid some of this.
18:32 S2: Just say no to credit cards, over spending at a young age is one of the biggest issues for… Bankruptcy but as you get older, you don’t tend to do that as much. You have other issues. So you pull a credit report and you look at it regularly, get one every year. Look and see where you’re at, but if you look every year and try to keep it straight, it’s gonna be hard if you’ve been four years in undergrad and now you’re spending three years in grad school, it’s gonna be hard, but if I’m looking at it, say, I can’t pay my credit card bill and my electric bill as long as my electric bills up-to-date, I would pay my credit card bill and then keep money to pay the next month ’cause it’s nowhere near what your electric bill is, and then pay your electric bill because unless you go into…
19:26 S2: The electric company is not reporting to the credit bureaus that you’re a month behind on your electric bill, cell phone, companies do… You can’t do it cellphone, same thing with water sewer type thing, the municipalities and the authorities don’t want you voting against them. So they give you far more flexibility. If you just need a month where you need two months and you sort of spin it that way, if you wanna higher score, keep your credit cards, your installment loans and play, if you have to play with a utility, just don’t do it too many months in a row or that backfires as well. You can always go back and negotiate with credit card companies, they don’t have to negotiate with you because they have a contract, you can go back, but you’re gonna do that, do that before you go to law or do that in your first year. Because you say, Well, I’m making my payments. If you’re making a payment arrangement other than what your initial contract agreement was, it’s reported that way on the credit report that scored against you, if your minimum payment would be $25 and you’re making a mini-payment of $10, the bank decides, Well, if I’m gonna get something out of this, I’ll take $10 for now, they reported as an agreed upon amount, but not paid in full, or if you negotiate your bill down and you have $1000 and you go back to and say, Look, I’m struggling here.
20:46 S2: I can only give you $70, but I can give it to you all at once. Will you go away, there’s some pay and delete that you can do in it, but if you don’t do pay and Delete, not everybody does pay and delete, it’ll show up and it’ll drive your credit score down for up to two years, and if you miss one payment, you can one credit card payment, 30 days beyond when it was… Due you can drop your score 20, 40 points, has a deal where they don’t care how bad your credit is, as long as everything is up to date, but that can be hard, but if you have everything updated, then you just go back and you start talking to creditors and banks, credit card can often reset your loan as if it was just restarting today, and they can reset the loan, but I think by law, they’re only allowed to do that once every four years, and most banks don’t wanna do that, but go back and ask always ask if you have a recently payment delay say, Hey look, I didn’t realize it was a late payment, I had it in the car to pay it, and it fell between the seat…
21:44 S2: A modern version of my dog ate the payment. You’re gonna need to show payment or show the statement that says you’re up-to-date on anything that shows a late on to credit bureau.
21:55 S1: Do you recommend the students after they graduate, sit down with some type of financial planner or a credit counselor or something like that
22:03 S2: There are free one… Some of the free ones are paid by the credit card companies, so I don’t care what they tell me about… Yeah, they’re free counselors and here to help you, if they’re paid by the enemy they’re still the enemy. It’s better to find one in the community by some community organization that is not funded by a bank or a credit card company. The other thing I would tell people, ’cause I am not a huge fan of debt managers, I had a gentleman come in who was using a debt manager of Florida, when I looked at it, he was paying more to the debt manager than what… the amount of the debt actually was the only reason he found me is he got sued by something he thought that debt manager was paying, but that that manager was taking his fees upfront, that’s unethical. And so I threatened to report the behavior to the Supreme Court in Florida, and we gotta check back for all the money that he paid, which was enough to file bankruptcy.
22:54 S1: Yeah, oh my gosh. It’s just really scary.
22:56 S2: There is a federal statute, it’s one page of what by Federal law, a credit repair person or company can charge, basically they can charge for a letter they send out for our phone call that they do, or when something’s removed from your credit report, the courts have extended it where they can also charge monthly maintenance fee, there’s a lot of things you can do to improve your credit that they never tell you about because they can’t charge it for, so why would they bother to.
23:24 S1: I think that really gave the students a really good idea on what they’re up against at the tail end of law school, really what they need to watch out for, what they should do before they start law school that just get into good habits. Any last pieces of wisdom.
23:38 S2: If you’re in all kinds of debt, you don’t have a whole lot of real assets like real estate after you’re accepted in law school and you worry about payment, and as long as you don’t need private money, that is a good time after your bankruptcy, if you’re looking for private loans, don’t do it because you’ll probably not get a private loan until your last year. Other than that, you just gotta build good habits because there are a lot of attorneys who file bankruptcy.
24:08 S1: Okay, well, thank you so much, David, if they wanna reach out to you if there are questions or follow-up… Where can they reach you?
24:13 S2: Creditmonkey.pro Or you can reach me at info@Creditmonkey.pro.
24:23 S1: Perfect. Alright, thank you so much, I really appreciate your time. Before we get into my top takeaways, a quick word from our sponsor, Juno, if you need to take out student loans. Check in with Juno first. Juno can often save law students 1%-2% less in interest rates on their loans below federal loans with no cost to the student and usually cash back as well. Visit Joinjuno.com/legallearningcenter to sign up. So my first takeaway is be proactive review your credit score and reports regularly. Number two, Be careful around debt managers and financial advisors who are trying to do things like sell you credit cards, number three, if you are having financial issues before law school, the optimal time to file bankruptcy is after you’re already in school, but you won’t qualify for private loans, Four, generally, student loans are not discharged in bankruptcy, but there are hints that this is changing. Now, all tips. Links and so forth will be in the show notes. And that’s it for this episode. Be sure to tune in next week when we talk to Alex. Alex returned to law school after about 10 years off, find out what he did to prepare himself for success and ensure that returning was the right decision for him, and if you learned anything today, please like share, comment, review, subscribe, so that this show is more visible and can help others who need it… Thank you.
Be sure to listen to parts 1 of our Law & Finance series at http://legallearningcenter.com/tehfinancialcoaching and for part 2 visit http://legallearningcenter.com/juno
