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Good Article – Improving Your Credit Score After Bankruptcy Fast!

It’s about as popular as a root canal or a blown tire on the freeway. Yet like both of those dreaded occurrences, filing for bankruptcy is commonplace in modern America. In 2013 1,107,699 individuals and businesses in the U.S. had to file for bankruptcy according to government data. While it’s pretty safe to say that not many of the folks who filed for Chapter 7 or Chapter 13 bankruptcy were eager to do it, it’s worth remembering that bankruptcy is by no means a financial death sentence. After all, bankruptcy protection is designed to provide people and companies with a way to discharge at least some of their debts and start over. And one of the very first steps to reboot your financial life involves rebuilding your credit score.

How Bankruptcy Affects Your Credit Score

There’s no sugarcoating the fact that any individual who has to file for bankruptcy is going to see a negative impact on their credit score. This matters because lenders rely on credit scores – which typically range from 300 on the low end to a maximum of 850 – to determine whether or not to offer you a mortgage or car loan and, if they do, at what interest rate. Put another way, a credit score is a quick way for lenders to decide how risky it is to loan you money. Not surprisingly, a bankruptcy — which, by definition, allows someone to not repay all of their debts — hammers your credit score. How much it hurts depends on where you started. According to the Fair Isaac Corporation, which is better known as FICO and the best-known company that calculates credit scores, someone with a stellar score of 780 would see their rating plummet to between 540 and 560 after declaring bankruptcy. A person with a starting score of around 680 can expect to drop between 150 and 180 points, to between 500 and 530, after a bankruptcy. You can take a look at the credit profiles of the two people used in the FICO example here. What does this all mean? In short, bankruptcy is a major red flag to lenders, a fact that is reflected in your credit score. In April of 2014 FICO reported that its median score was 711. Scores of 550 or lower are considered “deep subprime” by lenders and carry with them high interest rates – if you can get a loan at all.

Rebuilding Your Credit to Improve your Financial Health

Fortunately, a bankruptcy is by no means game over for your financial life. There are steps you can take to begin rebuilding your credit and, eventually, your overall financial health. “Bankruptcy is a very difficult and emotional time since there are severe consequences, but it also represents a chance to “start over” from a financial sense,” says Bill Harddekopf, CEO at LowCards.com. According to Hardekopf, the road back to financial well being starts with rebuilding your credit score. “One of the first things to do is to get a free copy of your credit report, which you are able to do once a year from each of the three major credit reporting agencies. Check this for errors. Make sure you also determine your FICO credit score and work diligently to build up this score each month.” Raising your score, says Hardekopf, is all about getting back to basics. “Pay your bills on time. Don’t spend more than you can afford. Get a credit card that reports to the credit reporting agencies and pay off the entire balance each month so you don’t incur any interest charges–this will help slowly build your credit score.” Gerri Detweiler, author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, counsels that it’s important to avoid the urge to steer clear from credit after a bankruptcy. “Unfortunately, many people avoid credit afterward, which is understandable, but doesn’t help the situation,” she says. Instead, Detweiler says to focus on responsibly repaying any loans — such as a car or student loan — that may have survived bankruptcy. “Continue to pay them on time. You may also want to get a secured credit card. Use it for one purchase a month (your cell phone bill for example) and pay it off right away, and it will provide a valuable credit reference,” she says. “I’ve seen consumers boost their credit scores by 50-75 points or more in one or two years using this approach.”

Ways to Improve Your Credit After a Bankruptcy: A Checklist

As both Detweiler and Hardekopf make clear, being proactive about rebuilding your credit score after a bankruptcy is a must. Here are some other ways to take an active role in reinvigorating your financial health post-bankruptcy:  

Know your credit score — Many people put this one off, because it can be painful. You know your credit score is low so does it really matter how low? Yes, it does. Get a copy of your credit report and know your score. Review it for any inaccuracies and make note of your debts. Only then can you come up with a plan to pay off your debts and improve your credit. WisePiggy.com is a great resource to get your score truly for free (without having to enter your credit card number).

Open a new bank account — Opening a new checking and savings account will demonstrate financial stability. It can also give you a fresh slate to practice good financial habits. When you open your account, talk to the banker about signing up for automatic online bill pay. This will ensure that your bills are paid on time, which is a major factor in good credit.

Apply for a secured credit card — If big credit card bills led to your bankruptcy, you may feel like this is a terrible idea. Why go down that path again? The best answer is that secured credit cards are one of the easiest ways to build credit and improve credit scores. Compare interest rates of different cards, so you can select a card with the best rate and a low annual fee. A rate around 15% is good and an annual fee less than $30 is desirable.

Get a gas card or a retail card — Gas and retail credit cards will also improve your credit. If you drive a car, you will have to purchase gas. You should make those purchases work for you. Gas and retail cards typically don’t require applicants to have good credit and, in fact, cater to folks with blemished credit.

Pay off your balance in full every month — While you are reestablishing your credit, it’s critical to pay off your full balance every month. This demonstrates to creditors that you are not a risk. Timely payments also have a significant impact on your credit score.

Continue to monitor your credit score — Check your credit score regularly (monthly is ideal) while you are actively improving your credit. Watching that number go up can make you feel like your hard work is really paying off.

Finally, it’s also important to remember to be patient throughout this process. A bankruptcy can impact your credit for as long as 10 years. But the more active a role you take and the sooner you get started, the quicker you can bounce back from bankruptcy. The bottom line is avoid a bankruptcy if at all possible, but if you have to file, then know there is hope. Good luck and please share any tips or feedback you might have below!   Curtis Arnold, a nationally recognized consumer advocate, is the founder ofBestPrepaidDebitCards.com, which provides ratings of prepaid cards and secured credit cards. He also founded CardRatings.com almost 20 years ago.

Can I Sell Some Of My Assets Before Filing Bankruptcy?

The idea behind bankruptcy is to assist a person in resolving debt and learning better financial management. Being able to start again is not just about leaving the past behind, it also requires a person to protect their remaining assets. The benefits of this can be maximized by NOT borrowing, selling or depleting these assets before the bankruptcy is filed.   Bankruptcy attorneys often meet clients who have engaged in desperate measures in order to stay on top of increasing debt. This behavior occurs under the misconception that those positive assets would be lost after filing the bankruptcy. In reality, it is more difficult to recover from a bankruptcy if a person does not have the basics, such as a home, clothing and transportation. In some cases, the basics may also include retirement accounts, unemployment benefits and other tools of your trade.  

Bankruptcy Protection and Your Assets

In most cases, bankruptcy will provide protection for your assets. A Chapter 7 bankruptcy filing, also known as a “straight bankruptcy,” will protect assets that are considered exempt, which means the majority of people filing a Chapter 7 will be able to hold on to what they own. If there are assets that have a higher value than what is exempt by law, an “adjustment of debts” under Chapter 13 bankruptcy can help a person keep what is non-exempt. If someone has assets that are not considered exempt, an experienced bankruptcy attorney can develop a plan to protect the assets when the case is officially filed.  

Bankruptcy Can’t Bring Back What Has Already Been Lost 

While bankruptcy does provide some protections, it cannot bring back what has already been lost. Assets that have been spent, sold or borrowed against to avoid financial disaster could have been saved if the bankruptcy had been filed sooner. The result of this is a person who will not have anything left with which to start life over.

Many people facing bankruptcy do not understand the consequences of borrowing, selling and spending and are unaware of which assets are protected under law. They also do not know how to place themselves in the optimal position prior to filing the case.  

Consequences of Filing Without a Bankruptcy Attorney

There are serious and long-lasting consequences to bankruptcy, which is why the decision to file should not be made without an attorney. An example would be a middle-aged woman taking money out of her retirement savings in order to pay debts that would be written off by a bankruptcy. Doing this is harmful to her financial future as a retired person, as she would have nothing to fall back on. Another scenario is a married couple selling a reliable vehicle that has been paid off, in order to resolve bills. They are operating on the assumption the vehicle would be taken from them in a bankruptcy filing, and they would be left with an older model that cannot be relied on to transport them to their jobs. This is the opposite of the fresh start they are seeking. The couple would have been able to keep their vehicle by filing either a Chapter 7 or a Chapter 13 bankruptcy, after consulting an attorney for a strategic plan to protect assets.

Many times, people seek legal advice only after they have gotten into financial trouble, as a result of acting on unwise decisions. Painful outcomes can be avoided by planning ahead of a bankruptcy filing by taking the time to get legal advice and create a plan for the filing. The main objective of bankruptcy is a fresh start, in order to build a better life on a stronger foundation. By taking the time to be advised of rights and protections, most assets can be protected from creditors.

Important Information on Your Creditor List!

If you’re deep in debt enough to consider bankruptcy as an option, you likely owe money to a whole roster of creditors. What we see in our office is that when our clients come in to discuss filing bankruptcy, they have a list of pressing debts that they are concerned about – credit cards, car loan, mortgage – but they really don’t know exactly who all they owe money to. For some, they may not want to think about how extensive the list is of those they owe and for others, they simply don’t remember who all they owe.   Why you want to ensure your creditor list is complete   It’s important that the list of creditors is accurate and complete for a number of reasons:
  • First, you’ll get the most complete relief by including all your creditors. If a creditor is not included in your petition, there’s a chance that they can seek recourse later.
  • Second, you’re not allowed to leave creditors off. If you have a credit card that is not maxed out and is current, you may want to hold it back, but that’s not allowed. You don’t want to be accused of inaccuracy on your bankruptcy petition that could cause your payment plan to be turned down (in a Chapter 13 bankruptcy) or your discharge to be disallowed (in a Chapter 7 bankruptcy).
  • Third, having the most complete picture of your debt circumstances allows your bankruptcy attorney to get you the best results. By knowing exactly what your income versus debts are allows our attorneys to advise you whether you’re best served by a Chapter 7 or Chapter 13 and to ensure that the means test (the standard you must pass to secure a Chapter 7) is accurate and complete.
How you can make sure your creditor list is complete Prior to coming in for your bankruptcy consultation, pull a free credit report to bring in with you. Also, collect up your last month of mail and sort through it for bills in case some of your past due debt isn’t on your credit report. Finally, sit down and think about your bills and see if there are any debts you can think of that aren’t on your credit report or in the stack of mail. This can include personal loans, furniture rentals (or rent to own arrangements), title pawns, payday loans and other “off the books” financial arrangements. Bring all this information along when you come in for your free consultation, along with your most recent tax returns and pay stubs. This will allow us to give you the best advice and tell you which options you’re eligible for and which will give you the most complete debt relief. Don’t be worried about being embarrassed by what you owe, whom you owe or what the debt was for – we’ve seen it all and can serve you best with accurate information. There’s no judgments in this process – we’re here to help you. Remember, any creditor you fail to list in your bankruptcy petition won’t be discharged and can come after you at any point. If you leave off a major debt, this can ruin your financial fresh start and you don’t want that. And, worse than your repayment plan not being approved or your petition being dismissed, you can be accused of bankruptcy fraud for leaving off debts and creditors. In short, your bankruptcy petition needs to be both accurate and complete.  

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