Things You CAN Do After
Bankruptcy
One of the issues that people
considering bankruptcy often worry about is that they will never get
credit after filing a Chapter 7 or Chapter 13. That, or the fact
that the bankruptcy will stay in their credit report for 10 years
from the filing, which fact would serve as warning to future
creditors that you might turn out to be a bad risk.
But neither is true, however. While a
bankruptcy will indeed stay in your credit report for ten years, it
does not necessarily mean that you can no longer get new credit.
Furthermore, only a Chapter 7 bankruptcy will stay in your credit
report within 10 years. If you filed under Chapter 13, the period is
shorter – about five to seven years.
Worst case scenario: You can get a
new loan but with high interest rates or fees. Now, that’s not so
bad, is it? Especially after considering that even people with good
credit can get bad loan deals. The fact remains that no matter how
bad or good your credit line, it is not a guarantee that you are
going to get approved for a loan or get low interest rates.
In other words, a bankruptcy may
damage your credit but only to an extent. It does not necessarily
mean that you will never qualify for a new credit. What damage there
is, you can always rebuild. And that is what you should be focusing
on, instead of wallowing in the pits of Credit Doom.
#1 CAN DO: Keep a Credit Card out of
the Bankruptcy
When filing for bankruptcy, the rule
is that you have to make a schedule. A schedule is a list of
all assets and liabilities that you are required under the law to
disclose before a bankruptcy case could commence.
If you owe money on a credit card at
the time you file for bankruptcy, you have to include that in the
schedule. Otherwise, you may be sued for perjury and penalized under
federal law. What’s worse, if you fail to disclose unpaid credits
like this, you may be denied discharge of all your debts.
The rule, however, only applies to
unpaid credits. So if you do not owe any money on your credit card,
then you can go ahead and keep that one out of the bankruptcy. You
are not obliged to inform the credit card company of the bankruptcy
case.
Note, however, that your credit card
company may still find out about it through other means and cancel
your card as a precaution.
If your credit card company gives you
notice of cancellation of your credit card, don’t give up yet. Many
credit card companies allow their credit card holders who are filing
for bankruptcy to keep their credit card on condition that they
agree to reaffirm the balance on the card and enter into a new
agreement.
Try to re-negotiate the terms with
your credit card company and see if you can settle for a situation
that is beneficial for both you and the company. While the decision
is up to the creditors, keep in mind that what they want is to avoid
the loss incurred when the debt is discharged and to have your
future business.
#2 CAN DO: Get New Credit after
Bankruptcy
If there is one thing you can count
on in today’s competitive lending environment, it is that credit
is always available, even to the recently bankrupt.
The catch?
Credit may be more expensive than
before and available with lower limits. But all that is secondary
only to the fact that credit does exist and you can get it.
One of the easiest credits available
to the recently bankrupt is a secured credit card. As opposed to an
unsecured credit card, in a secured card, you must make a deposit of
a certain amount of money in exchange for a card that you can use
just like a regular credit card. Your credit limit is equivalent to
the cash deposit you made.
Now, the good thing about a secured
credit card is that it is usually available post bankruptcy at lower
rates than unsecured cards.
What’s more, the fact that these
credit cards are secured are not often indicated in your credit
report so creditors have no way of knowing whether your credit card
is secured or not. All they will see is that you have been approved
for a credit card, which ups your credit score a bit and puts you
back in the game fairly quickly.
Note, however, that credit experts
are not quite in agreement concerning the impact of secured credit
cards on your credit rating. So if you do decide to open a secured
credit card post bankruptcy, be sure to do it slow.
While your rush at rebuilding your
credit is understandable, making mistakes that could significantly
affect your credit score like this is not worth it.
Rebuilding your credit worthiness
after bankruptcy is a matter of getting a toe-hold in the world of
credit. The balance is often precarious and needs delicate
treatment. Use credit cautiously and pay on time.
#3 CAN DO: Buy a House after
Bankruptcy
Absolutely. In fact, there are many
studies that show bankruptcy debtors can qualify for a home loan on
the same terms as if they had not filed bankruptcy within 18 to 24
months after a bankruptcy discharge.
You see, what the creditors are
concerned here is not your past financial troubles but your current
financial status – e.g., your down payment, the stability of your
income and the relationship between the loan payments and your
monthly income.
That said, take note of the following
things that you might want to do in preparation for your first house
purchase post bankruptcy:
-
When purchasing a home after
bankruptcy, the key is the discharge date, since there is
usually a waiting period. If your loan was an FHA loan, you
usually have a 2-year waiting period for that. For other
conventional loans, the waiting period is four years.
Now, during the waiting period, you
need to do two things: re-establish at least 4 lines of credit
(auto loans or credit cards, for example) and maintain
an excellent payment history.
-
Make sure that there
aren’t any delinquencies on your credit report that should have
been cleared off with the bankruptcy.
If you find any, contact your creditors immediately. Include a
copy of your “Schedule of Creditors” in your letter so that your
creditors can indicate the debt was included in the bankruptcy
and update your credit report.
-
The more money you have in your
savings or checking account, the better and stronger your file
is going to look to a lender when you apply for a home loan.
Remember that your ability to
make a down payment bears great significance in your approval
rating. If you have money in your savings account, your
creditors will naturally conclude that you have the money to make a
down payment.
#4 CAN DO: Get New Wheels after
Bankruptcy
A common misconception people have
after a bankruptcy is that getting new credit like a car loan is
virtually impossible. Well, note that the word used is “virtually.”
That is not the same as saying that you are certainly never
going to qualify for a new car loan. Because the truth is you can
and you should, if you need to.
If you can get a house after
bankruptcy, then there is all the more reason for you to be able to
get a car. In fact, you can even start going through some
dealerships as soon as your discharge papers are in. Just remember
that the interest rates are not going to be cheap. Here are some
tips to help you deal with that one tiny tangle:
-
Check with the Special Financing
Department
Most car dealerships have this
special financing department that handles would-be car purchasers
who are going through some financial trouble. Since these buyers
would not be able to qualify for a conventional auto loan, some
dealerships are willing to offer you a different deal to help you
get that car you want and at the same time overcome the hurdle of
credit after bankruptcy.
If you are a member of the credit
union at your workplace, contact them and see if you can get a car
loan through them. Often, credit unions offer lower interest rates
than banks, which in addition to charging you higher interest rates,
may also require you to deposit your paycheck directly with them. If
your workplace does not have a credit union, your neighborhood may
have one. Some are available to people based on organization or
church affiliation, or even residence in a certain community.
Not many people are aware of this but
charities are actually a good place to look for inexpensive cars.
You may have heard of charities that ask you to donate your working
or non-working cars to them. In order to raise money, they repair
these cars and sell them for a price that is significantly lower.
Try those charities found in your neighborhood and see if they sell
cars that are more along your price range.
#5 CAN DO: Have a 700+ Credit Score
Two Years after Discharge
You might find this statement
suspect, which is understandable really when you consider the many
stories of how one bankruptcy can thoroughly damage the credit
rating you’ve been building up for years. Expert after expert has
said that new credit is near impossible to get after filing for a
bankruptcy.
However, in almost the same breath,
the experts likewise say that it is not impossible to rebuild your
credit worthiness after bankruptcy. And this is bolstered by the
fact that you had good reason for the bankruptcy, such as
unemployment, medical, business failure, etc, and that you
immediately took steps re-establishing credit after receiving the
discharge.
So why then, despite complying with
these two requirements, your credit score remains way below average?
The answer lies in your credit report.
Your credit report contains
everything about your finances. All of the information contained in
your credit report, when added up, result in your three-digit credit
score. Hence, any errors in your credit report, such as a fraudulent
credit line or a debt that remains even though it was supposed to be
discharged after bankruptcy, can aversely affect your credit score.
Common sense tells you that if you
correct these errors and mistakes, you can improve your credit
score. Also, some creditors make various inquiries into your credit
report. This act could lower your credit score. What’s more, after a
discharge, they are allowed to make only one inquiry into your
credit report. After that, you are entitled to ask for $1,000 every
time they look into your credit report.
Make certain that your creditors are
not making any more inquiries into your credit report. Write them a
letter explaining that the debt has already been discharged. Include
a copy of the discharge order as well as a copy of the “Schedule of
Creditors” from your bankruptcy papers as proof that the debts have
already been discharged.
|
