4 Rebounding Tips After Bankruptcy

So you have filed for bankruptcy. What’s the next step?

At first blush, you are full of ideas on how you are getting a fresh start. You have freed yourself from almost all of your debts and you are, for all intents and purposes (financially, at least), a new person.

But note that by filing for bankruptcy, you had to pay a dear price. In exchange for a discharge of your debts and stopping your creditors from pursuing any collection actions against you, your credit rating took the brunt of the blow. Considering how your credit rating was probably not all that great to begin with, this recent hit is not going to be an easy one to recover from.

Let’s start with the bad news:

- The bankruptcy will stay on your credit report for up to 10 years.

- To lenders, you would seem a bad risk because you have legally written off at least some of your past debts.

- As a consequence, you may not be able to get a loan or a credit card for some time after the bankruptcy.

- And if you do get lucky and get approved for credit, the interest rates and fees attached will be rather punishing.

The silver lining? Think positive. It is good that you are restricted from getting new credit. Credits were what you got bankrupt in the first place. They will have no difficulty getting you in that place again.

Now, for the rebounding tips to help you climb back up from the pits of bankruptcy:

TIP 1: Lead a Frugal Lifestyle

Common sense dictates that you lead a simpler lifestyle properly slimmed-down, no frills attached. In other words, be frugal.

If you filed under Chapter 13, it means that you have signed up for a repayment plan to pay off some of your debts. The purpose of Chapter 13 is to allow debt reorganization so that you can continue holding on to your properties and other assets in exchange for obliging yourself to pay your debts for a certain number of years. The bottom line, therefore, is that you are still in debt, albeit, you may only pay a portion of the total debt to your creditors.

The usual period given by bankruptcy courts with which you can pay off your debts is within three to five years. During this time, the court allows you only a set amount to live on while the court-appointed trustee divides the rest among your creditors each month.

What does this mean to you?

As we earlier said, it means a no-frills lifestyle. No luxuries whatsoever, except those exempted under the law. And sometimes, just sometimes, it may also mean changing your basic expenses, such as how much you pay for shelter and groceries every month. You may even have to move to a cheaper apartment or a more low-end neighborhood just so you can get by with the amount the court allows you.

Suffice to say that getting new credit will be a difficult feat, if not downright impossible. So you can forget about getting a new credit card or a car loan. Or at least, getting it the easy way. Besides, you can’t take on a new debt without the court’s permission anyway, and getting that means adding an awful lot of complexity in your life.

So how do you go about with barely anything to tide you over through the hard times ahead? It’s simple really make a budget. Better yet, keep a close watch on your expenses for three months and make a budget based on any observations you have made on your spending habits.

This is exactly what Greg McBride, CFA, senior financial analyst for Bankrate.com advises.

Track your expenses for three months to get an idea of how much you’re spending and where that money is going. Then create a realistic budget that fits within your monthly income, he says. The first step to saving is to set boundaries on your spending.

And after making a budget, stick to it. That’s the most important part.

TIP #2: Work on Rebuilding Your Credit

Ah yes, the 800-pound gorilla that you would have to take on rebuilding your credit. Fortunately for you, filing for bankruptcy does not have quite the same social and financial stigma it once did ten, maybe twenty years ago.

The purpose of filing is a safety valve, says Roger M. Whelan, resident scholar of the American Bankruptcy Institute, a nonprofit professional organization. Thank God, the day in which it was like wearing a blazing star on your forehead is over.

But rebuilding your credit is the double-edged sword of post-bankruptcy life. You have gotten to where you are now because you mismanaged your credit. However, this does not mean that you would have to steer clear from credit from now on. At first, you may have to, because you are given little choice on the matter. But sooner or later, you find that you have to get credit to rebuild your financial life.

So what are the rules? There are no rules; that’s the best part about it. It does not matter how you do it or how fast. The factors can vary widely from the kind of resources you have and the type of bankruptcy you filed for.

For instance, if you filed under a Chapter 13 bankruptcy, the bankruptcy will stay in your credit for five to seven years. Whereas, if you filed under Chapter 7, the bankruptcy could stay longer in your credit report say, up to ten years. During that period, it is going to be very, very difficult for you to get credit, let alone work on rebuilding yours from bad to good. And yet, rebuild you must, if you want to get back in the financial game.

Now, if you have a high dollar income, then obviously you are going to have a slightly better edge over the rest. But just slightly. If you managed to hang onto your house, paying your mortgage on time will improve your credit report.

But remember that many apartments don’t report to credit bureaus, so those payments will keep a roof over your head but won’t help you rebuild your credit, warns John Ulzheimer, business development manager for MyFico.com, a division of Fair Isaac Corp., the company that developed credit scoring.

Ironically enough, while Chapter 7 filers usually have a hard time getting approved for new credit, they are also usually the ones that have a better chance at rebuilding their credit.

Henry Sommer, an attorney and author of Consumer Bankruptcy: The Complete Guide to Chapter 7 and Chapter 13 Personal Bankruptcy says that while you’re in a Chapter 13 (reorganization), your options are somewhat limited in terms of credit. That’s because you cannot really apply for new credit without getting the court’s permission first.

On the other hand, under a Chapter 7, you are given more freedom in that area since all your debts are discharged. The sooner your debts are discharged, the sooner you can get to working on repairing your credit.

TIP #3: Adopt a Positive Attitude and Show What You have Learned

Experts on bankruptcy insist that attitude and persistence can make a difference on your life after filing for a Chapter 7 or Chapter 13.

The consumer who’s going to recover faster is the consumer who jumps back in, says Ulzheimer.

Financial capacity is one thing, says Tahira K. Hira, a professor at Iowa State University who specializes in consumer economics and family finance. Mental or attitudinal capacity is the other thing.

So being positive can make a whole world of difference. If you build a savings account, carry no debts and have an emergency fund, you’re saying, Look, I can control my behavior, Hira adds. It depends on how good a salesperson you are and how good your behavior has been.

And, of course, by behavior, she means your financial behavior or how you carry yourself around expenses and financial obligations.

Pay your bills on time is the name of the game. It is also incidentally the easiest way to show to your lenders that you have learned from your past financial mistake and are making every effort never to fall into that trap again. In short, youve got to be a model citizen in terms of financial management.

Can you handle it? Of course, you can! And the only rule to follow is this: Shop for lenders.

There will be a price attached, warns Hira, which is higher interest.

This gives you all the more reason to be discriminating when choosing lenders. Don’t just jump at the first credit opportunity thrown your way only to find that the interests are punishing. Don’t get hard-balled into paying for high interest rates when you can get virtually the same loan for lower interest. Compare lenders. You are the consumer and you still have the advantage of choice.

TIP#4: Get a Credit Card.

The best way (to establish good credit) is to get a credit card, says Mark Oleson, director of the University of Missouri Office for Financial Success. It’s ironic because the best way to help yourself is also the best way to damage yourself.

You generally have two options. You get either a secured card or an unsecured one. Here’s how the two are different:

Secured Card

Because they lose nothing by this, credit card companies are very open to secured cards. However, personal finance experts are divided on whether or not these cards are helpful to consumers looking to re-establish credit.

Basically, a secured card works by depositing money with the bank in exchange for a charge card. The limit of this charge card will depend on the amount that you have deposited (it’s usually for the same amount). Thus, when you close the account, you get your deposit back.

The good thing about secured cards, though, is that some of them do not report to the credit bureaus that the card is in fact a secured one. For all the credit bureau knows, you have a credit card and you’ve been using it for some time. It will show on your credit report as a regular credit line without anything explaining it as a secured card.

However, that is not always the case. So a common sense advice would be that if all you get is a secured card, be sure to get the best rates and the least fees. Before you sign, be sure to read all the fine print. And finally, use the secured card sparingly. Give it only six months to a year. And afterwards, try to negotiate with the company for an unsecured card.

Unsecured Card

Even after you have declared bankruptcy, you may still be able to get a card. It all depends on lender discretion. Some lenders and banks may even consider you a good risk because you do not have any debts on you. What’s more, with bankruptcy, there is a certain time period where you cannot file for another bankruptcy. Lenders may take it into good account that you may not be able to file for bankruptcy for a several years.

However, note that there is a very likely chance that you are going to pay for this privilege. Again, the standing advice is: shop around and always, always read the fine print before signing anything.

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Bankrupcy Tips – Work On Rebuilding Your Credit – Part #2

Ah yes, the 800-pound gorilla that you would have to take on rebuilding your credit. Fortunately for you, filing for bankruptcy does not have quite the same social and financial stigma it once did ten, maybe twenty years ago. ‘The purpose of filing is a safety valve,” says Roger M. Whelan, resident scholar of the American Bankruptcy Institute, a nonprofit professional organization. ‘Thank God, the day in which it was like wearing a blazing star on your forehead is over.’

But rebuilding your credit is the double-edged sword of post-bankrupcy life. You have gotten to where you are now because you mismanaged your credit. However, this does not mean that you would have to steer clear from credit from now on. At first, you may have to, because you are given little choice on the matter. But sooner or later, you find that you have to get credit to rebuild your financial life.

So what are the rules? There are no rules; that’s the best part about it. It does not matter how you do it or how fast. The factors can vary widely from the kind of resources you have and the type of bankruptcy you filed for. For instance, if you filed under a Chapter 13 bankruptcy, the bankruptcy will stay in your credit for five to seven years. Whereas, if you filed under Chapter 7, the bankruptcy could stay longer in your credit report say, up to ten years. During that period, it is going to be very, very difficult for you to get credit, let alone work on rebuilding yours from bad to good. And yet, rebuild you must, if you want to get back in the financial game.

Now, if you have a high dollar income, then obviously you are going to have a slightly better edge over the rest. But just slightly. If you managed to hang onto your house, paying your mortgage on time will improve your credit report. But remember that ‘many apartments don’t report to credit bureaus, so those payments will keep a roof over your head but won’t help you rebuild your credit,’ warns John Ulzheimer, business development manager for MyFico.com, a division of Fair Isaac Corp., the company that developed credit scoring.

Ironically enough, while Chapter 7 filers usually have a hard time getting approved for new credit, they are also usually the ones that have a better chance at rebuilding their credit. Henry Sommer, an attorney and author of ‘Consumer Bankruptcy: The Complete Guide to Chapter 7 and Chapter 13 Personal Bankrupcy’ says that ‘while you’re in a Chapter 13 (reorganization), your options are somewhat limited in terms of credit.’ That’s because you cannot really apply for new credit without getting the court’s permission first.

On the other hand, under a Chapter 7, you are given more freedom in that area since all your debts are discharged. The sooner your debts are discharged, the sooner you can get to working on repairing your credit.

Bankruptcy Tips #2: Adopt a Positive Attitude and Show What You have Learned

Experts on bankruptcy insist that attitude and persistence can make a difference on your life after filing for a Chapter 7 or Chapter 13. ‘The consumer who’s going to recover faster is the consumer who jumps back in,’ says Ulzheimer. ‘Financial capacity is one thing,’ says Tahira K. Hira, a professor at Iowa State University who specializes in consumer economics and family finance. ‘Mental or attitudinal capacity is the other thing.’

So being positive can make a whole world of difference. ‘…If you build a savings account, carry no debts and have an emergency fund, you’re saying, ‘Look, I can control my behavior,’ Hira adds. ‘It depends on how good a salesperson you are and how good your behavior has been.’ And, of course, by behavior, she means your financial behavior or how you carry yourself around expenses and financial obligations. ‘Pay your bills on time’ is the name of the game. It is also incidentally the easiest way to show to your lenders that you have learned from your past financial mistake and are making every effort never to fall into that trap again. In short, you’ve got to be a model citizen in terms of financial management. Can you handle it? Of course, you can! And the only rule to follow is this: Shop for lenders.

‘There will be a price attached,’ warns Hira, ‘which is higher interest.’ This gives you all the more reason to be discriminating when choosing lenders. Don’t just jump at the first credit opportunity thrown your way only to find that the interests are punishing. Don’t get hard-balled into paying for high interest rates when you can get virtually the same loan for lower interest. Compare lenders. You are the consumer and you still have the advantage of choice.

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Bankruptcy Help – 5 Things You Can Do After Bankrupcy

One of the issues that people considering bankruptcy often worry about is that they will never get credit after filing a Chapter 7 or Chapter 13. That, or the fact that the bankruptcy will stay in their credit report for 10 years from the filing, which fact would serve as warning to future creditors that you might turn out to be a bad risk. But neither is true, however. While a bankruptcy will indeed stay in your credit report for ten years, it does not necessarily mean that you can no longer get new credit.

Furthermore, only a Chapter 7 bankrupcy will stay in your credit report within 10 years. If you filed under Chapter 13, the period is shorter about five to seven years. Worst case scenario: You can get a new loan but with high interest rates or fees. Now, that’s not so bad, is it? Especially after considering that even people with good credit can get bad loan deals. The fact remains that no matter how bad or good your credit line, it is not a guarantee that you are going to get approved for a loan or get low interest rates. In other words, a bankruptcy may damage your credit but only to an extent. It does not necessarily mean that you will never qualify for a new credit. What damage there is, you can always rebuild. And that is what you should be focusing on, instead of wallowing in the pits of Credit Doom.

#1 CAN DO: Keep a Credit Card out of the Bankruptcy

When filing for bankruptcy, the rule is that you have to make a schedule. A schedule is a list of all assets and liabilities that you are required under the law to disclose before a bankruptcy case could commence. If you owe money on a credit card at the time you file for bankruptcy, you have to include that in the schedule. Otherwise, you may be sued for perjury and penalized under federal law. What’s worse, if you fail to disclose unpaid credits like this, you may be denied discharge of all your debts.

The rule, however, only applies to unpaid credits. So if you do not owe any money on your credit card, then you can go ahead and keep that one out of the bankruptcy. You are not obliged to inform the credit card company of the bankrupcy case. Note, however, that your credit card company may still find out about it through other means and cancel your card as a precaution. If your credit card company gives you notice of cancellation of your credit card, don’t give up yet. Many credit card companies allow their credit card holders who are filing for bankruptcy to keep their credit card on condition that they agree to reaffirm the balance on the card and enter into a new agreement. Try to re-negotiate the terms with your credit card company and see if you can settle for a situation that is beneficial for both you and the company. While the decision is up to the creditors, keep in mind that what they want is to avoid the loss incurred when the debt is discharged and to have your future business.

#2 Get New Credit after Bankruptcy

If there is one thing you can count on in today’s competitive lending environment, it is that credit is always available, even to the recently bankrupt. The catch? Credit may be more expensive than before and available with lower limits. But all that is secondary only to the fact that credit does exist and you can get it. One of the easiest credits available to the recently bankrupt is a secured credit card. As opposed to an unsecured credit card, in a secured card, you must make a deposit of a certain amount of money in exchange for a card that you can use just like a regular credit card. Your credit limit is equivalent to the cash deposit you made. Now, the good thing about a secured credit card is that it is usually available post bankruptcy at lower rates than unsecured cards.

What’s more, the fact that these credit cards are secured are not often indicated in your credit report so creditors have no way of knowing whether your credit card is secured or not. All they will see is that you have been approved for a credit card, which ups your credit score a bit and puts you back in the game fairly quickly. Note, however, that credit experts are not quite in agreement concerning the impact of secured credit cards on your credit rating. So if you do decide to open a secured credit card post bankruptcy, be sure to do it slow.? While your rush at rebuilding your credit is understandable, making mistakes that could significantly affect your credit score like this is not worth it.

Rebuilding your credit worthiness after bankruptcy is a matter of getting a toe-hold in the world of credit. The balance is often precarious and needs delicate treatment. Use credit cautiously and pay on time.

#3 Buy a House after Bankruptcy

Absolutely. In fact, there are many studies that show bankruptcy debtors can qualify for a home loan on the same terms as if they had not filed bankruptcy within 18 to 24 months after a bankruptcy discharge. You see, what the creditors are concerned here is not your past financial troubles but your current financial status e.g., your down payment, the stability of your income and the relationship between the loan payments and your monthly income. That said, take note of the following things that you might want to do in preparation for your first house purchase post bankrupcy:

When purchasing a home after bankruptcy, the key is the discharge date, since there is usually a waiting period. If your loan was an FHA loan, you usually have a 2-year waiting period for that. For other conventional loans, the waiting period is four years. Now, during the waiting period, you need to do two things: re-establish at least 4 lines of credit (auto loans or credit cards, for example) and maintain an excellent payment history.

Make sure that there aren’t any delinquencies on your credit report that should have been cleared off with the bankruptcy. If you find any, contact your creditors immediately. Include a copy of your Schedule of Creditors” in your letter so that your creditors can indicate the debt was included in the bankruptcy and update your credit report.

The more money you have in your savings or checking account, the better and stronger your file is going to look to a lender when you apply for a home loan. Remember that your ability to make a down payment bears great significance in your approval rating. If you have money in your savings account, your creditors will naturally conclude that you have the money to make a down payment.

#4 Get New Wheels after Bankruptcy

A common misconception people have after a bankruptcy is that getting new credit like a car loan is virtually impossible. Well, note that the word used is virtually.” That is not the same as saying that you are certainly never going to qualify for a new car loan. Because the truth is you can and you should, if you need to. If you can get a house after bankruptcy, then there is all the more reason for you to be able to get a car. In fact, you can even start going through some dealerships as soon as your discharge papers are in. Just remember that the interest rates are not going to be cheap. Here are some tips to help you deal with that one tiny tangle:

Check with the Special Financing Department
Most car dealerships have this special financing department that handles would-be car purchasers who are going through some financial trouble. Since these buyers would not be able to qualify for a conventional auto loan, some dealerships are willing to offer you a different deal to help you get that car you want and at the same time overcome the hurdle of credit after bankruptcy.

Credit Unions
If you are a member of the credit union at your workplace, contact them and see if you can get a car loan through them. Often, credit unions offer lower interest rates than banks, which in addition to charging you higher interest rates, may also require you to deposit your paycheck directly with them. If your workplace does not have a credit union, your neighborhood may have one. Some are available to people based on organization or church affiliation, or even residence in a certain community.

Charities
Not many people are aware of this but charities are actually a good place to look for inexpensive cars. You may have heard of charities that ask you to donate your working or non-working cars to them. In order to raise money, they repair these cars and sell them for a price that is significantly lower. Try those charities found in your neighborhood and see if they sell cars that are more along your price range.

#5 Have a 700+ Credit Score Two Years after Discharge

You might find this statement suspect, which is understandable really when you consider the many stories of how one bankruptcy can thoroughly damage the credit rating you’ve been building up for years. Expert after expert has said that new credit is near impossible to get after filing for a bankruptcy. However, in almost the same breath, the experts likewise say that it is not impossible to rebuild your credit worthiness after bankruptcy. And this is bolstered by the fact that you had good reason for the bankruptcy, such as unemployment, medical, business failure, etc, and that you immediately took steps re-establishing credit after receiving the discharge.

So why then, despite complying with these two requirements, your credit score remains way below average? The answer lies in your credit report. Your credit report contains everything about your finances. All of the information contained in your credit report, when added up, result in your three-digit credit score. Hence, any errors in your credit report, such as a fraudulent credit line or a debt that remains even though it was supposed to be discharged after bankruptcy, can aversely affect your credit score.

Common sense tells you that if you correct these errors and mistakes, you can improve your credit score. Also, some creditors make various inquiries into your credit report. This act could lower your credit score. What’s more, after a discharge, they are allowed to make only one inquiry into your credit report. After that, you are entitled to ask for $1,000 every time they look into your credit report. Make certain that your creditors are not making any more inquiries into your credit report. Write them a letter explaining that the debt has already been discharged. Include a copy of the discharge order as well as a copy of the ‘Schedule of Creditors’ from your bankruptcy papers as proof that the debts have already been discharged.

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