Credit repair after bankruptcy 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.
As a credit repair attorney law firm, we can answer your questions about credit repair after bankruptcy in an understanding and confidential way.
Contact us for your free confidential consultation.
How To Rehabilitate Your Credit After Filing Bankruptcy
As a credit repair attorney 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:
- Avoiding further credit reversals, which include actions like foreclosures, judgments, collection actions, evictions, and tax liens.
- 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.
- 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.
- 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.
"Credit Repair After Bankruptcy"
By Attorney Jeffrey Foster
The most common question we are asked by clients considering bankruptcy is what happens to my credit after bankruptcy?
Will I be able to obtain credit for the next 10 years while the Chapter 7 remains on my credit report?
After speaking to hundreds of clients after they have received their discharge, bankruptcy will improve your credit score and you will be able to obtain credit rather quickly after you receive your discharge.
Before you file bankruptcy, your debt may have caused your credit score to plummet. If it hasn't, it will if you have a disproportionate amount of debt compared to your income.
This is called the debt-to-income ratio and it is likely the most important component of your creditworthiness and the number most lenders utilize when considering you for a loan.
To re-establish credit after your bankruptcy, I recommend you consider taking the following actions following your bankruptcy discharge:
Obtain credit reports from Equifax, Transunion and Experian after your bankruptcy has been discharged.
Carefully review your credit report to ensure that all debts are listed as "discharged in bankruptcy". If any debt is listed as open, you will need to dispute the credit reporting with the credit bureau showing the open account. You can dispute the reporting online and you may need to include your bankruptcy discharge as an attachment to your dispute. If you would rather write the credit bureau a letter with your discharge, a sample letter can be found here: http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre13.shtm
Consider obtaining a secured credit card or auto installment loan after your bankruptcy has been discharged.
After filing bankruptcy, you will receive numerous offers to secure new credit. We caution you against going into debt after your bankruptcy has been discharged, however in order to re-establish your credit score, you will need to establish credit. We recommend you speak to a financial counselor before taking out new debt in order to determine the affordability of post-bankruptcy debt since the interest rate can be quite high.
Avoid credit pulls.
If you are considering an auto loan, inform the potential lender that you have filed bankruptcy and all other relevant financial information but do not provide your social security number until you have received a quote on the car loan. When your credit is pulled by a potential dealer/lender your credit score goes down. Don't allow the lender to talk you into a credit pull and if the dealer tells you that they cannot quote you a price without running your credit, go to a different lender.
Re-affirm a car loan in your Chapter 7 bankruptcy case.
By re-affirming an affordable car loan, you re-instate the loan. This means that your auto lender will report your payments to the credit bureaus thus establishing at least one trade line that will increase your credit score. However, be wary of a re-affirmation agreement. Your bankruptcy discharge will eliminate your obligation on your auto loan and many lenders will not require you to sign a re-affirmation agreement as long as you make your payments on time after your bankruptcy. If you do not sign a re-affirmation agreement and you are unable to make your payments after bankruptcy, the lender cannot collect a deficiency judgment (difference between the amount you owe on the car loan and the price received by the lender when your car is auctioned off) against you if the car is repossessed.
If you have a family member or friend who has good credit, low debt and solid employment, ask your family member or friend to add you on to a credit card with a low balance.
This will allow you to piggyback off of your family member or friend's good credit after your bankruptcy is discharged. However, be mindful, if your family member or friend is late on a payment or unable to make a payment, your credit will suffer as a result.
Pay your debts on time or before they are due.
By avoiding late payments after bankruptcy, you will increase your credit score much quicker after your bankruptcy discharge. For debts such as re-affirmed car loans, taxes, mortgages, student loans and other debts existing after bankruptcy, avoid late payments at all costs.
Late payments can be devastating on your credit.
To avoid late payments, you may want to consider setting up auto deductions from your bank account to make your monthly payments after your bankruptcy was filed.
In conclusion, you must obtain credit for your credit score to improve.
However, you must make credit decisions wisely to avoid future credit difficulties.