Whether filing Chapter 7 or 13 bankruptcies, utilizing a credit counseling service is mandatory six months before filing. To file Chapter 7, a debtor needs to pass the ‘means test.’ The test determines if a debtor is eligible for the chapter. Chapter 7 bankruptcy allows you to keep a savings account and checking account. However, while keeping the accounts is allowed, the money in those accounts is a different matter. There is little or no protection of the cash in those accounts.
It is difficult for people who have careers with income higher than the state average to file Chapter 7 bankruptcy. There are limitations placed on filing bankruptcy again. You’re eligible for filing Chapter 7 only once within an eight year period.
Debtors, having unsecured debt less than $307,675 and secured debt less than $922,975, are eligible for Chapter 13. Chapter 13 bankruptcy is a payment plan. Filers have the option to propose a debt management plan. Payment plans make provisions for repayment over a three to five year period.
Debt calculators use disposable income, after necessary expenses, as the source to determine payments. The debtor retains his or her assets such as a home or auto. The rights of creditors are subject to the type of bankruptcy filed. Filing Chapter 13 means staying current with payments and a plan to repay past due amounts.
Steps to Take in Repairing Credit after Bankruptcy
If you erased financial hardship by filing bankruptcy, you want to rebuild your financial health. You’ll want an invitation back into the world of credit, to finance a home mortgage, or an auto loan by proving you are no longer a credit risk. It takes time and patience.
One change to a payment structure, number of debts, or other steps won’t be an instant cure. The management of debt requires a plan and you must stay on track with the plan. The change in credit scores is gradual. As the scores changes, greater opportunities become available. Manage credit in a careful manner until you reach our goal. Maintain the approach taken to keep the score high. It requires patience to succeed.
You Are Not Alone
Filing bankruptcy is the worst thing that happens to credit ratings. It feels like an invasion of privacy. You share personal information with bankruptcy trustees and court personnel in open court. Your life seems to become an open book. There is good news. According to Craig Watts, creator of the FICO credit score rating, and Peter A. Chapman, CEO of Beard Group Inc., people recover from bankruptcy. There are links in this article that are helpful in that pursuit,
The number of consumers taking the bankruptcy plunge continues to grow. Medical bills are the top reason for filing bankruptcy. The increase in personal filings last year was 21 percent. Business bankruptcies are on the rise too. There were nearly at 60,000 for the same period. Because of the great number of bankruptcies, lenders pay more attention to other factors. Minding Ps and Qs post bankruptcy restores credit ratings after the bankruptcy falls off of a credit report. Getting a clean credit slate takes 10 years to complete.
The negative information on a credit report is important, but when the report appears and how bad it is also matters. Bad credit information scoring models consider three questions.
- How recent is the information?
- What is the severity?
- What is the frequency?
Please make paying bills on time every month policy. Create a plan that helps make payments on time. A plan eliminates the payments being late and shows payments made on time every month on the credit report. Check credit reports making sure the payments show up correctly on the reports. Scheduling payments online are helpful to some people who are prone to paying late.
On the ‘should do list’, replace the most recent information on a positive activity that shows you paid bills on time. When making payments on any account, pay amounts that are slightly higher than the minimum requirement.
Applying for Needed Credit
Different lending companies have different risk thresholds for the products and services they provide. Credit card offers are few and far between for the first couple of years. People with the best credit get offers for the best credit cards. The privilege of credit cards for those who file bankruptcy comes with a high price tag regarding subprime, high interest rates offered. It is fine to apply for a line of credit. Available credit cards are needed when rebuilding credit after bankruptcy. They are tools used in the repair process.
An open credit card with no balance helps increase the credit score. Attempt to keep balances as low as possible. When you receive secured credit, keeping balances low is easy by either not carrying credit cards or cutting them up. A shopping lover needs to find another way to make payments. Ask yourself, “Do I need this?” before making a purchase.
Choosing not to use a credit card or paying card balances in full each month helps to build credit. Low balances provide a higher credit score. It does not hurt to make a few large payments. Those payments also have an impact on the credit score. The amount of outstanding to available credit affects the credit score.
Pay off the balance of as many credit cards as possible. Have a clear understanding of the balances on each card, which accounts need addressing first, and which accounts to close to avoid the temptation to use them. Using a consolidated approach to keep balances low, instantly helps raise a credit score. Continue with the approach to keep balances low.
Business owners who require a credit card need to consider paying off balances each month. Zero balance maintenance for most of the year prevents future problems. The credit bureau checks out your payment history during the year. A clean record of payments helps credit score rebuilding.
Here are some tips and advice from experts to help repair your credit.
- Review the credit report to ensure the bankruptcy is properly reflected. Debts that are part of the bankruptcy need a notation so that creditors are aware of items no longer in you debt pool.
- Every time a debt falls off of a credit report, the credit scores increases. Carefully check your credit report to look for errors. Any old debts that are eligible for removal but did not fall off the report need the attention of the credit bureau. The bureau removes items when the right amount of time passes.
- Checking a credit score is more than finding out what your score is. Check credit reports for accuracy. The report is sometimes inaccurate. Things remain that are eligible for removal. The information for someone with the same name sometimes appears, or some of the information belongs to your parents.
- Nationwide credit reporting bureaus must provide a free credit report each year when someone requests a copy. Go through the report annually and inform a credit bureau of any problems. When a credit bureau changes a report, it sends a free update to you. Keep the free credit update in case incorrect information appears in the future.
- Red marks appear on credit reports when late payments occur. Anyone checking credit worthiness wants to know the reason when may late payments over the course of a car loan or credit card history were late. A loan or credit card rate improves when timely payments for a long time occur, and the credit report content is constantly checked for erroneous late payments.
- When a bank, lender or credit card company sees accounts are in good standing, they lower interest rates and increase your credit limit over time. Since favorable credit scores and lower interest rates go hand in hand, time spent shopping for lower rates pays off over the years. Seeking a lower interest rate is a method of keeping the best credit score possible.
2. Establish a tight budget and remain faithful to it. Start by making simple changes when money is tight. Get out your calculator and subtract necessary expenses from income to establish what you have to pay down debt. Making simple changes gets things out of the way today to give yourself the opportunity to make larger ones tomorrow. Make a note of every change made to a credit score and list all needed changes. You progress through small changes to the large ones. It may take years to complete. Completing the list gives a sense of accomplishment. Personal financial decisions become easier when kept on a list.
- Broaden the focus of credit repair to more than the credit score. A credit score improves over time only when you take steps to make it better. Credit bureaus don’t have an interest in how often a person checks the score. Wise steps to improve a score pay off in the future. Find someone to hold you accountable to a plan. Check your score only one time each month. Following a plan is much easier that obsessing over a credit score.
- Old debt drops off a credit report after seven years, where paying on old debts keeps the debts on the credit report for seven years after a payment date. The payments add several years to a debt that was about to come off a report.
3. Seek new credit, but do so in moderation. Prove to lenders; you are capable of managing higher consumer debt loads such as a car payment and revolving credit. Mr. Watts advises that staying out of the credit market or being debt free may be great for financial health; it does nothing for a credit rating.
- Avoid putting yourself at risk in search of loans or credit. Risk takers with loans and credit cards encounter problems such as balloon payments, enlarged payments, or the requirement to pay off a balance instantly. On time payments sometimes have a short window with no grace period. Taking out a loan or credit card is putting yourself at risk. The risk increases when handling finances poorly. Be especially careful when taking out large lines of credit or loans.
- Interest rates on loans and credit cards need to be as low as possible. Shop for rates in multiple places. Those who spend time shopping for lower interest rates find the lower rates reflect well on credit scores. Ask over and over for the best rate for any credit card or loan you take. When offered no interest on balance transfers for s period, take advantage of the offer and transfer debt from cards with high interest to build credit faster.
4. If unsecured credit cards are unavailable to you, look to prepaid or a secured credit card. They have a limit equal to deposit reserved in savings in a bank account. Beware of big upfront demands and annual fees.
5. Student loans, taxes, and family child and spousal support are not eligible for discharge when you file for bankruptcy. If you were a student and have student loans, make payments on time to help rebuild your credit. Should a creditor contact you after filing bankruptcy, ask your attorneys to check into the matter? It is important that all creditors and collection agencies are on the list of requested discharged debt consolidation in your bankruptcy situation.