Credit Repair After Bankruptcy

A Chapter 7 bankruptcy filing generally remains on a debtor's credit report for ten years. A Chapter 13 bankruptcy will remain on a debtor's credit report for seven years. Credit repair will not remove a bankruptcy filing from your credit record. However, the substantial decrease in your debt-to-income ratio can greatly increase your credit score after bankruptcy because most or all of your debt will be eliminated while your income remains the same.

Filing Bankruptcy Damages Your Credit, But It Will Not Prevent Future Borrowing

When a lender is deciding whether to lend to a borrower in an asset-based purchase context, the lender is typically taking three things into consideration: the proposed loan-to-value ratio (i.e., the amount and percentage the borrower proposes to put down toward the purchase price), the proposed income ratio (i.e., the percentage of the borrower's monthly income that the new loan obligation will consume), and the borrower's credit. The higher the borrower's down payment and the higher the borrower's income, the less the lender will depend upon the borrower's credit. Admittedly, some lenders will reject a loan application based solely on the presence of a recent bankruptcy filing. Other lenders will consider the loan but will demand a higher rate of interest to compensate it for the perceived increased risk. Other lenders will virtually disregard a prior bankruptcy filing. One way to minimize the damage a bankruptcy filing has on your credit score is to avoid further credit damage in the months and years after filing bankruptcy, such as foreclosures, repossessions, lawsuits, tax liens and evictions.

How To Rehabilitate Your Credit After Filing Bankruptcy

It is our responsibility at Attorney Bankruptcy Services to prepare and file your bankruptcy (based on information your provide to us) in order to eliminate your dischargeable debt in bankruptcy or settle your debt outside of bankruptcy. We are unable to make sure your credit reports accurately reflect the status of your accounts. But, we highly advise you to obtain a copy of your credit report both before and 6 months after your discharge.

Make Sure Your Credit Report Is Accurate

The discharge of your debts should be reflected on your credit report but that may not necessarily be so. Upon being advised of your bankruptcy filing, the credit reporting bureaus--Experian, Trans-Union and Equifax, as well as the underlying creditors, ought to be updating your credit report to reflect that the account, previously reflected as late or charged-off, is slated for discharge or has been discharged. But it doesn't always work out that way. It is not uncommon for a debtor to find two or three years after bankruptcy, when he or she is attempting to obtain a home loan or vehicle loan or lease, that several creditors are still reporting their account as delinquent or charged-off but not discharged as a result of bankruptcy. In bankruptcy, you should mail a copy of your discharge to all credit bureaus if any credit account discharged in your bankruptcy still appears on your credit report. In settlement matters, you should mail a copy of the settlement agreement to all credit bureaus if any previously settled credit account appears on your credit report following the settlement.

Rehabilitate Your Credit

A plan of attack for credit rehabilitation following bankruptcy will require:

1. Avoiding further credit reversals, which include actions like foreclosures, judgments, collection actions, evictions, and tax liens.

2. Avoiding incurring needless debt relative to your income. Try to avoid saddling yourself with any unnecessary debt such as unsecured credit cards following bankruptcy. As stated above, your debt-to-income ratio changes dramatically in your favor after you file bankruptcy. If you take on too much debt after your bankruptcy discharge, the ratio will again work against you in credit rehabilitation and you will not be able to file bankruptcy again for eight (8) years.

3. Regularly paying (on time) home mortgages, auto loans and leases, equipment loans and leases, and all other monthly financial obligations. Another way to repair credit damage is to use a secured credit card. Most of the major financial institutions offer such accounts, whereby you deposit a certain sum, such as $500, and the institution gives you a $500 credit line. If you fail to pay, the institution is at no risk, as it is already holding your money as protection. If you are making your payments each month and the institution sees that you are a worthy credit risk, it will eventually return the deposit to you and make the account a true credit card, or will increase your credit limit without demanding additional deposit funds.

4. Making formal objections to any credit reporting made in error. For example, if a creditor fails to report an account discharged in your bankruptcy, be sure to contact the relevant credit bureau to state your objection and to provide the credit bureau with your bankruptcy discharge if necessary. To find out more about objecting to credit reporting errors, please visit www.ftc.gov.

To receive a free consultation regarding your (or your friend or family member’s) debt problems, please contact us today.