Life After Bankruptcy: Chapter 7 vs Chapter 13

Consumers often get confused as to what the difference is between a Chapter 7 bankruptcy and a Chapter 13 bankruptcy. The difference is simple. In a chapter 7 bankruptcy the consumer pays absolutely nothing back prior to filing for bankruptcy and in a chapter 13 scenario the consumer attempts at paying back part of the debts owed. However, there is still uncertainty as to the effects and impacts of the each on individual credit reports. It however may interest you to know that it is possible to rebuild credit after bankruptcy and it is possible to get back on your two feet. However is is essential that you take the right steps.

Rebuild Credit After Bankruptcy

In order to rebuild credit after bankruptcy, you must work on your credit report in a systematic manner.Make an attempt towards obtaining credit after bankruptcy and it will help you a long way in improving your credit score after bankruptcy.

1. Obtain Your Credit Report: After being discharged from bankruptcy, it is advisable to obtain your credit score to gauge your credit score at the point in time. It may surprise you but clients have been known to emerge with credit scores of well in excess of 600 post their bankruptcy periods. Once you have your credit score you can charter a path for credit repair after bankruptcy. It may be beneficial to regularly obtain your free credit report on an annual or semi-annual basis to track your progress.
2. Make Your Repayments During The Bankruptcy Period: At times certain debts are not discharged with bankruptcy. The court may order you to keep making repayments on certain loans even after filing bankruptcy. These often include debts like federal debt or student loans etc. While in your bankruptcy period it is very important that you keep making these payments and make them on time and if possible make higher contributions.
3. Obtain Secured Credit: You will find that in your life after
   

   Obtaining New Credit Is Important After Bankruptcy

   bankruptcy, it is extremely difficult to obtain credit or credit cards due to a poor credit score after bankruptcy. Even if you do, they will be with very low spending limits and with relatively higher interest rates. The way around this issue is to obtain a secured line of credit loan or a secured credit card. What this means is that you will have to place your own funds as security equal to the line of credit or credit card. If you keep paying off your balance in full each month, at the end of a couple of years you should be able to obtain a regular credit card or line of credit. This is an excellent method to help you out with credit repair after bankruptcy.

4. Prepare A Budget: Once you have come out from your bankruptcy period it is important to learn from your mistakes. Prepare a budget and try to ensure that you are making higher contributions than your minimum loan repayments to help build your credit score after bankruptcy.
5. Obtain Short Small Amounts Of Credit: In your life after bankruptcy, it is important that you obtain small amounts of credit and pay them of as soon as possible. While living without debt is advisable, you cannot live completely on cash as that will not improve your credit score after bankruptcy. Obtaining small amounts of credit and paying them off will help with credit repair after bankruptcy.

It is important to remember that while bankruptcy is very serious and affects your credit score in the worst possible way, it is not the end of the road and there is life after bankruptcy. With corrective steps and by following the tips to improve your credit score after bankruptcy you could be on the road to recovery and on to a healthy credit score.

References:

1. Bounce back fast after bankruptcy – MSN Money
2. Credit after bankruptcy – Moran Law
3. Chapter 7 impact on credit – Bankrate

Getting A Home Loan After Bankruptcy

At the very outset you should remember that once you have been discharged from bankruptcy it is best to wait for at least 2 years prior to applying for a bankruptcy morgage loan.  If however you do decide to apply for a after bankruptcy home loan prior to the 2 year gestation period, ensure that you have flawless repayment history and that all your contractual obligations associated with the bankruptcy have been paid and are up to date. Once the 2 year wait period is up it is fairly easy to get a bankruptcy mortgage loan and in certain cases you can even get up to 100% finance. Lenders when considering bankrupt client applications look at the following things:

• Repayments history post discharge from bankruptcy.
• Timely payment of all financial obligations related to the bankruptcy, especially government debt if any.
• Source of deposit for property.
• Employment and stability of income.

These are a few things which lenders keep a close eye on. One thing that you might have noticed is that lenders nowadays are very particular about the source of the deposit on the property. This is particularly important owing to the fact that in the past clients have tried to defraud banks when getting a home loan after bankruptcy by misstating the source and details of the deposit. If your bankruptcy mortgage loan deposit is from a relative, the banks might need you and your relative to get a signed statutory declaration stating that the funds are a non-repayable gift. This is done so that the bank is satisfied with the source or else it will also constitute another loan or credit contract.

Home Loans With Bankruptcy – Tips

Applying for an after bankruptcy home loan is not the same as applying for a regulr home credit loan. Listed below are a few tips to help set yourself up well for home loans with bankruptcy, after you have been discharged from bankruptcy. This should ensure that you are in a good position while applying for a after bankruptcy home loan.

• Budget: One of the most important things post bankruptcy is budgeting. Take into account all of your fixed overheads. Then take your income and subtract your expenses from it. This will give you a residual surplus which you can use to start a savings pattern or use to reduce bills faster before you apply for an after bankruptcy mortgage loan.

• Rectify Mistakes On Your Credit Report: Quite often consumers emerging from bankruptcy find that there are still a number of accounts which appear as delinquent, overdue or open on their credit reports when in fact these should actually be closed and are credit report errors consumers are often unaware about. Take these issues up with the appropriate credit bureaus and try and resolve them as soon as is possible. This will ensure that your credit report looks a lot healthier when applying for a home credit loan.

• Apply For Small Chunks Of Credit: By applying for small amount of credit you will put yourself in a position to repay these small loans like car loans and personal loans a whole lot sooner and thereby build your repayment history and increase your credit score. This will work in your favour when applying for a bankruptcy mortgage loan.

• Use Your Credit Card Sparingly: Having a credit card and using it only as required is another way to build up your credit score as discussed in the post about credit card balances. When you use your credit card sparingly and pay out the credit card debt in full each month, this adds a lot not only to your credit score but also your repayment history, making it possible for lenders to trust you when you apply for a bankruptcy home loan.

Consumers must remember that your bankruptcy might be on your credit report for a period of 10 years, but it will not be there forever. It will eventually come off and your credit report will go back to being normal. It is prudent to ensure that all your bills are up to date and that you are trying to build your credit report every step of the way. With these simple steps consumers who have just been discharged from bankruptcy should have no problem applying for an after bankruptcy home credit loan.
References:

1. Bounce back fast after bankruptcy – MSN Money
2. Personal Loan after Bankruptcy - The Dolar Stretcher

Refinance Your Mortgage For Better Credit Report

Consumers are sometimes misled and often believe that bankruptcy is a whole new start. While this is true, one should remember that declaring yourself bankrupt, comes with a lot of repercussions and bankruptcy affects credit reports as stated below:

• For starters, your FICO score gets affected negatively by anywhere between 240-280 points owing to the fact that bankruptcy is a matter of public record.
• Secondly clients who have been declared bankrupt find it very difficult to obtain credit and even if they do it is at a much higher interest rate.

Hence in light of these facts a mortgage refinance might just be the saving grace and one of the best alternatives to bankruptcy.

Alternatives To Filing Bankruptcy

Bankruptcy is not the only solution to manage mounting debt and there are some alternatives to filing bankruptcy that will not affect your credit report as badly. Listed below are a few alternatives to bankruptcy:

1. Refinance A Mortgage To A Lower Rate: If you are still in a product or with a lender offering a higher interest rate than the market place, it might be time to shop around and look for a lower interest rate for a mortgage refinance. A lower interest rate means lower repayments.
2. Mortgage Loan Refinance And Debt Consolidation: If you have more than one property and are struggling to keep up with your repayments, a mortgage loan refinance and debt consolidation might be a good idea. Consolidate your two separate mortgages into one facility and make one repayment on them. This usually also enables customers to make lower repayments owing to the single facility being larger and is an excellent bankruptcy alternative.
3. Line of Credit: This is a very powerful mortgage tool. This is much the same as using a checking account. The client is granted an overall account limit and can draw down from the mortgage loan as and when required. You only pay interest on the drawn down amount or the used amount.
4. Obtaining Cash Out: This type of a mortgage refinance will allow you to use the lazy equity in your mortgage loan. The diagram explains what lazy equity is.In this example the consumer can get a loan of up to 80% of the property value, i.e. 480,000 without having to pay Mortgage Insurance. Hence the client can use the additional 30,000 as per the client’s discretion. People often use the cash out component to pay off bills, credit cards and to create buffers in their mortgage account.

Using a mortgage refinance is a great alternative to bankruptcy as a well managed mortgage loan improves your credit report rather than the damage bankruptcy causes. However, there is one more alternative to bankrtupcy as well:

• Filing For A Chapter 7 or Chapter 13: Clients can sometimes file for a chapter 7 which is commonly known as liquidation as alternative to bankruptcy. This does not disqualify a client from obtaining a mortgage refinance as long as 2 years have passed since the client was discharged of the bankruptcy. On the other hand if the client files for a chapter 13, he/she can still obtain a mortgage refinance as long as the payments in relation to the mortgage and the bankruptcy have been made on time.

In a changing credit environment, consumers can no loner rely on the “one size fits all” principle. It is essential that clients reassess their situations and are full aware of all bankruptcy laws before making a decision. As as an alternative to bankrtupcy, one can refinance mortgages out of their present financial institutions and on to cheaper rates and solutions. This could be the ideal alternative to bankruptcy and helping you maintain a blemish free credit report.

Reference:

1. Could Mortgage Refinance Help You Get Out Of Debt? – Legal Helpers

Filing A Bankruptcy: Credit Report After Bankruptcy

It is essential that consumers understand that bankruptcy is an extremely serious financial situation brought upon a creditor either voluntarily or involuntarily. Either way bankruptcy affects your credit report dramatically. Once you have been declared bankrupt, although you may feel that you are relinquished of your debt obligations, bankruptcy brings with it a whole new string of issues and your credit report after bankruptcy may not paint a pretty picture. Filing a bankruptcy credit is a public record and hence stays on your credit score rating for a period of 10 years or more. The effects of bankruptcy on your credit report may be summarized as follows:

• Filing a bankruptcy is viewed as extremely negative by credit providers. This is considered the worst kind of adversity on your credit report and even supersedes delinquencies and accounts in collections/judgments.
• A bankruptcy on a credit report makes obtaining credit through major channels extremely difficult as lender look at bankruptcy credit clients unfavorably.
• A bankruptcy credit charge on your credit report could lower a good credit report score rating by 100 points or more.
• In the event of filing a bankruptcy all debts are not discharged.
• It is important to understand your debt obligations in the event of being declared bankrupt. Debts such as taxation obligations, student loans, child support and alimony are not discharged. The payments on these obligations need to be made or they will further adversely affect your credit score report.
• Consumers with a bankruptcy credit report may be able to obtain credit through sub-prime channel/non-conforming lenders but this is usually at a very high interest rate and that in turn means you are spending a lot more money.

Fresh Start Bankruptcy

Once a consumer has been declared bankrupt, it is regarded as a fresh start for them and this is known as a fresh start bankruptcy. The consumer with bankruptcy on their credit should now focus on rebuilding their credit report. Although this is a long and tedious process it can be done.

• One way to start is by obtaining small secured amounts of credit and making regular and timely repayments and focusing on paying it back as soon as possible. This will help show good character on the part of the bankrupt consumer.
• Another vital tip is for consumers with bankruptcy on credit reports to obtain their credit score ratings regularly and monitor their progress.

Alternatives To Bankruptcy:

As stated earlier, bankruptcy must be treated as a last resort and consumers should consider all possible bankruptcy alternatives before filing for a bankruptcy. A few possible alternatives to bankruptcy are:

• Managing Your Own Finances: If you feel like you are coming under undue and increasing financial pressure and you money managers are not coping with your changing situation, it might be time to roll up your sleeves and take control of your finances before you end up filing a bankruptcy.
• Debt Mitigation/Restructuring: In the event that you feel you are unable to cope any further with your debts, talk to your creditors and negotiate with them an amount they will accept in return for forgiving a portion of your debt without demanding a bankruptcy on your credit report. Most financial institutions are willing to provide their customers with debt mitigation services.
• Consolidation: Debt consolidation is a powerful tool in managing your debts. This allows consumers to roll all their debt into on facility and make one larger repayment instead of numerous smaller ones and often prevents bankruptcy on credit reports from appearing.
• Filing Chapter 13: This is another powerful tool or bankruptcy alternative which is available to US consumers struggling with their debt obligations. Chapter 13 Wage earner plan is an arrangement which usually lasts for a period of 5 years. The funds earned by the consumers are distributed among the creditors. This could save a person from declaring bankruptcy.

Filing a bankruptcy is a major setback for credit score ratings and therefore it cannot be reiterated enough that a consumer must think seriously before filing for a fresh start bankruptcy. However if you do, your next course of action should be concentrating on removing bankruptcy on your credit report and rebuilding your credit score rating.

Declaring Bankruptcy: Legal Definition

Declaring bankruptcy may be defined as “The legal inability to pay debt” or the state where a person is legally declared bankrupt according to bankruptcy laws. Simply stated when the debts of a consumer are far exceeded by his/her income/assets an individual is considered to be bankrupt and needs to file a bankruptcy.

File A Bankruptcy – Types of Bankruptcy

If your credit standing is irreparable even after debt consolidation, debt counseling and other kinds of credit help, you may have no other option but to file for a bankruptcy. You should know that the most common types of bankruptcy as laid out by bankruptcy laws are:

• Voluntary: This is also referred to as a Debtor’s petition. When an individual or organisation owes another money, he/she may either enter voluntary bankruptcy or may file a debtor’s petition to file a bankruptcy. On the acceptance of this petition the individual is automatically declared bankrupt.
• Involuntary (Creditors Petition): If the amount owing to a creditor exceeds $2,000, they may join with other creditors in an attempt to declaring bankruptcy of the individual. In order to do this the creditor must first obtain a judgement from the court and then apply to the official receiver to issue a notice to the debtor demanding payment within a set date (usually 21 days). If the debtor fails to do so then the creditor can appeal to the Federal Magistrate court asking for the debtor to be declared bankrupt.

Bankruptcy Law: Declaring Bankruptcy Facts

In general, bankruptcy gives honest debtors a new start and helps them rebuild a credit report from scratch when they file a bankruptcy. However, it is advisable to think carefully before filing a bankruptcy as it has many repercussions. The following are a few characteristics of the laws of bankruptcy:

• Bankruptcy law is a federal law and is contained in Tier 11 of the United States code. The states have no regulation over this.
• Filing for bankruptcy allows debtors a chance to resolve their debts.
• Declaring bankruptcy allows debtors to be freed from all obligations once their assets have been distributed even if their debts have not been paid in full.
• Bankruptcy law allows for the interest of all creditors to be treated with a certain amount of equality.
• In certain cases the bankrupt debtor may continue to remain in business and may be allowed the use of the revenue generate to dispose of his/her debts.
• Bankruptcy cases are litigated in the US bankruptcy courts.
• Bankruptcy is of 2 types, i.e. voluntary and involuntary.

Declaring Bankruptcy: How To File Bankruptcy

The process of filing a bankruptcy starts with the filing of a petition with the Bankruptcy court. This further gives rise to a bankruptcy estate which includes all the assets and liabilities of the person filing for a bankruptcy. The taxation obligation may vary depending upon on the chapter under which the bankruptcy petition was filed. When a debt is owed to a person and is cancelled, the cancelled debt is usually treated as income and adds to the tax obligation of the individual. However if the debt is cancelled when filing for a bankruptcy, the debt is not taxed but would in turn reduce the tax benefits the individual would otherwise be entitled to.

Otherwise, conditions get worse and things go out of hands when timely payments are not made and matters are not efficiently responded. In the real estate matters when payments get delayed and are piled up in a heap, they become troublesome resulting in the shape of foreclosure and short sale.

A short sale is an agreement between the lender and the current owner of a home. It is a state of delinquency when a home owner fails to pay his mortgage and asks for an agreement. Generally the agreement is in between the delinquent person and the bank, which lends the money to acquire a home. The home is offered for sale for less than the amount owed, in order to get it back on a lesser price.

Many times a short sale is mingled with foreclosure. Foreclosure and short sale are two different things altogether. In a foreclosure the house is taken back when the house’s current owner falls way behind in payments. In foreclosure, the current owner also does not have any option of taking the house back, as after repossession from the lender or bank, the house is put on sale in the open market without any chances of some sort of agreement between the lender and the current owner.

A foreclosure is a more terrible thing than a short sale. Because in a foreclosure the amount paid is completely lost and no chances of recovery are offered. Both, foreclosure and short sale appear on a credit report as black marks; greatly disgraceful and dishonoring. Though they can be an effective money saving method, yet it can be a momentary relief. They can be very harmful on the long run as they are seen as debt forgiveness by many lenders.

It is recommended to seek professional advice from a lawyer before going for a short sale. A short sale is as bad as bankruptcy, and it can damage the credit report for a long period. A person should not opt for a short sale easily, it can significantly damage a FICO scores by 200 to 300 points and sometimes from 75 to 100. Another thing that hits the credit report in this regard is the report stating:”paid settled for the amount less than the amount owed”.

With a short sale on a credit report, one might not be able to purchase another home for two years. The lenders/sellers keep on monitoring credit reports of the buyers to ensure timely receipt of payments. Whilst, short sale is not a likely solution to financial problems, it still is less expensive than a foreclosure.

There are several factors that work to evaluate a FICO report and almost every factor has a specific impact on a FICO report. The factor that badly affects your FICO score is bankruptcy as this single factor can immensely lower your credit score. Aside from bankruptcy, there are many other factors that can decrease your credit score and some of them are as follow.

If you don’t make payments on time, it can lower your credit score considerably and if you are quite punctual making payments, it can be very helpful to improve your credit score.

When it comes to the kind of credit account, it may not be as troublesome as the late payment, but it can show some adverse affect on your credit report.

You must also keep this fact in mind that this is debt level which helps to determine FICO score level.

The thing that serves as the most important factor in determining credit score is bad credit behavior. It is good behavior that most of lending companies consider before approving some loan for you.

It is kept secret what are the exact calculations are used to make credit scores, but there are several things which point out how credit scores are calculated and your previous history about making payments in time, as this only factor makes up nearly 35% of your credit score. There are many other factors that can badly affect your credit score that include foreclosures or a tax claim.

These late and delayed payments decrease the credit score in a credit report and are generally referred to as red marks. Payments that are not paid on time or are not in accordance with a particular agreement are also known as derogatory items or a derogatory credit report on the whole. There are many things that include in making a credit report a derogatory credit report. Failing to pay for the opened accounts and letting them become delinquent is considered to be the sign of a person’s irresponsive nature and a habit of dishonoring commitments.

In a credit report that becomes derogatory, certain things can be taken off by the bureaus within 7 years. Though, bankruptcy is an item that can remain as long as 10 years onto a credit report. All the items that are closed accounts, still appearing as active accounts also damage the FICO scores and credit ratings.

The items that make a credit report negative and derogatory include collection of an account long being delinquent. It can stay onto a credit report for long, so the initial effort should be to prevent such condition. However, if such a situation is faced, it can be reverted by putting in some efforts. The claiming party should be contacted at the earliest and a payment schedule should be worked out.

Another disgraceful mark that appears onto a credit report is a foreclosure. This happens when a person fails to pay the mortgage on time and the owner takes the house back. The property is then taken to the market for sale erasing the possession of the previous mortgage payer. Similarly when a vehicle’s installments are piled up, the lender, generally a bank, repossesses the vehicle.

One of the most badly residing derogatory marks onto a credit report is judgement and bankruptcy. They can take 10 years to vanish from a credit report. Judgement means that the creditor or a collection agency has won a case against a debtor, filed for recovery. Likewise bankruptcy means that a bank debtor has stated his inability to pay back. Hence the bank declares the person as bankrupt, which is one of the darkest marks on a person and his credit report.

A good credit report earns more FICO scores, which along with a positive outlook also brings forth some benefits. More FICO scores can decrease the interest rate while applying for a loan. Likewise, people with such credit reports get an edge over others for jobs, house rents, and purchases on installments.

What to do if a black mark appears on your credit report as a result of a missed payment or a delayed payment. It’s a terrible thing to have onto a credit report. First, one should do the utmost effort to avoid from such a situation. If by chance, such a thing happens, then start finding the solution to resolve the problem and get off those items from his credit report.

This method is also known as ‘Credit Repair’. It’s been offered by many organizations that they can help you do the required task. You can do the needful yourself too, provided that you are proficient in financial matters. It must be know beforehand that it is a time taking work and needs full attention.

If you have hired any agency, it is not your headache then. When you are doing it yourself, things which are most bothering must be noted as primary, then start taking them up systematically. Get your copy of credit reports from all three bureaus, because there are things which are on one and are missing on the other.

Also note that there are certain black marks which are taken off from the credit report after a period of seven years. Some serious matters like bankruptcy stay on the credit report for as long as ten years. Such records may not be easily taken off of your credit report, but then you can try to resolve the issue and vanish it.

Contact the creditors at first, and let them know that you are interested in paying off the pending. There are possibilities that you will be given leverages of 50% as a settlement of account. In this case of delinquent account resolve, you might need the assistance of a professional firm.

If you doubt a negative entry on the credit report, you must contact the collection agency or the creditor. Inquire about the entry and write well drafted letters to the agencies. It is likely that the agency will take some time to answer your queries. It is beneficial for you if the said company, agency or creditor do not reply within 30 days. If happens so, the negative account will be automatically removed from your credit report by the company.

No matter, it is a time taking procedure, but mark, it is worth doing. Most of the times it is not possible to get items off your credit report, but by following these tips you might get some help. For caution sake, always try to make timely payments and make it a habit to check your mail and keep track of your bills to avoid missing out anything.

In the credit report late payments are listed as 30-60 or 90-120+ days late. If you are considering eliminating these late payments on your credit report, you must focus on eliminating 120+ late payments first because such payments quite seriously impact your credit score.

You need to check for unfamiliar names and match them to some account which you have. You must investigate further if you haven’t done so. It is possible that these were put into your credit report by mistake and would affect your credit score in a harmful way. Things can become worse if you have become the victim of identity theft, and it provides another ground to make it certain that someone else is not making the most of your credit devoid of your permission.

You must also keep this thing in mind if you have ever declared bankruptcy it shouldn’t stay more than seven years in your credit report, but if it appears after seven years, you must write a letter to all credit agencies and ask them for its removal from your credit report.

Late payments often become quite frustrating especially when you want some loan to be immediately approved and that’s why it is quite important to know about the ways to fix those errors and false information that become an obstacle to have better credit score and affordable interest rates on your applied loans.

Nearly 35% of your credit score depends on the punctuality of different payments and to be punctual in paying different bills can be very helpful for you to achieve a good credit score. So if you want to have a good credit rating you must spare no effort to pay these bills at time without getting late. Most of these late payments can last nearly seven years on your credit report from the initial missed payment date. When it comes to 30-60 days late payment, it can be damaging for your credit score only if it is reported as past due. But most of the time, these sorts of payments do not cause lasting damage to your credit score.

If you find only a few 30 or 60 days late payments on your credit report, the best way is to contact with your creditors on phone and request them for their removal.