Oops! Did you file for bankruptcy? Do you feel you are not going to recover from it? Better said, do you want to boost your credit score?
Not to worry, this article will shed light on the tips to improve credit score fast even after filing for bankruptcy.
It is a widespread notion that filing a bankruptcy would ruin your credit. Well, folks, the good news is, with patience, discipline, and of course, the tips that will be shared, you can improve that credit score. Although, bankruptcy, as well as other factors, are capable of causing severe damage to your credit scores. They are able to recover.
Before we get to it, a quick question you might want to consider is; why do we get into bankruptcy in the first place? What are the causatives that prompt us to file bankruptcy?
The predicament of bankruptcy often arises because of unpaid debt. It can be quite frustrating when creditors are coming down with lawsuits for the inability to pay.
Before filing bankruptcy, you need to know what your choices are. Bankruptcy claims are intelligible moves in dire financial crises. It gives you room to breathe and pay off debts incurred. However, there is a catch to this, and it is important we know the types of bankruptcy and their overall repercussions.
Bankruptcy categorization is by chapters.
Chapters are what guide the proceedings of filing for bankruptcy. There are four chapters or chapter numbers within Title 11 of the United States Code called bankruptcy of the federal bankruptcy code. These chapters factor in situations or scenarios of filing the bankruptcy report. Think of them as the different strokes for different folks. Therefore, you need to understand your financial state. There are chapters 7, 11, 12, and 13.
Chapter 7 refers to the liquidation of assets.
Chapter 11 covers reorganization.
Chapter 12 equals adjusted debts for a Family Farmer with regular annual income.
Similar to Chapter 12, chapter 13 covers an adjusted debt but only for individuals with regular income annually.
Of all these types of bankruptcy, chapter 7 is the most commonly filed. It is essential to know that when applying for these bankruptcy types, considerations are made first on the kind of financial situation at hand.
Let’s take a look at chapter 7:
When filing for chapter 7, you might want to be careful. Chapter 7 bankruptcy strips you of some of your assets.
A court assigns a bankruptcy trustee that administers the case. The trustee is obligated to provide accurate paperwork and sell off properties to the benefit of the creditors.
A quick run-through of the responsibilities of a bankruptcy trustee include:
Reviewing the Bankruptcy Petition:
When a debtor files a chapter 7 bankruptcy or any other, the paperwork is required. A petition, as well as other documents, are filed. The trustee’s job is to review the paperwork. In your submission, information on personal and financial reports, papers on financial debts, property and assets, income statements like; paystubs may be required. Generally, anything that would help prove the claim of bankruptcy and any other information should be made available.
An example would be; if you claim you earn $50 a month, they will definitely need evidence for that claim. Probably, a paystub or an account statement would be sufficient.
Sales of Assets:
You might as well be saying goodbye to assets that you cannot protect as a debtor. However, the operation of this particular responsibility is quite different. Here is how it works:
Keeping specific property from being sold is dependent on your state’s exemption statutes. What does that mean?
Any property that is not exempted for a debtor to keep would automatically be sold off to repay creditors. Frankly, this is a critical responsibility of trustees that should not be overlooked because when a chapter 7 bankruptcy is filed, assets can be lost. To stand a better chance, you can check the exemption (bankruptcy) statutes of your state.
Chapter 13 is another commonly filed Bankruptcy. It is not suitable for businesses but is excellent for individuals. Companies like corporations and limited liability companies cannot file bankruptcy in their names. Remember, the goal of bankruptcy declaration is for a debtor to pay off debts when other options fail.
Chapter 13 offers debtors a choice of installments. Individuals have the options of monthly, quarterly and annual payment plans to ensure they can pay off debts. Debtors are obligated to stick to their payment as the debt may last for over five years. The payments are made to the trustee who pays the creditors.
Why do people go Bankrupt?
You would agree that there is more sense in prevention than cure.
In the research conducted by Debt.org, statistics show that bankruptcy hit an all-time high in 2005. Over a million bankruptcy cases were filed. In 201,1 California topped the table with over 240,000 cases. Guess what, nothing has changed.
What then is responsible for the rise in bankruptcy filings?
Budgeting and spending lifestyle is a significant factor. However, that research indicates that the dominant player is the unprecedented financial situation of people; they are overwhelmed by financial hardships from medical expenses to college funding and all sorts.
Generally, things like; foreclosure, job loss, medical expenses, and bad budgeting are some of the main contributors to the rise in bankruptcy filings.
Job loss: No one prays to lose their jobs, especially when it is not for a well-planned retirement. However, the loss of a job could mean spending all your savings. This continues to happen, especially if there are no job options in view.
Medical expenses: we often land ourselves on the sick bed and this can drain our savings. Medical expenses may be unforeseen, but it takes a toll on our finances.
Bad budgeting: No thanks to inflation, spending habits have gone south. Then, there is the issue of discipline. Some just cannot help their buying habits, can they? With low income, excessive spending leads to financial instability.
The presence of a bankruptcy on your credit report is a red flag for creditors. Bankruptcy for creditors means financial irresponsibility and that takes a toll on your score; bankruptcy drops your credit score by as much as 150 – 200 points.
It is true that a bankruptcy can stay on your credit report for as long as ten years.
Didn’t you know that? Well, now you do.
Now, don’t panic. The objective of this article is to show you how to boost credit even after a bankruptcy. Just so you know what you are getting into, you must understand the impact of having a bankruptcy on your report.
Another truth is that most creditors determine your creditworthiness from your credit report, and having a bankruptcy on that report could be detrimental.
Recall the chapter 7 and 13 bankruptcies. Now, how long will these bankruptcy types stay on your report?
Chapter 13 Bankruptcy
This bankruptcy will be displayed differently on your credit report. You must go through your reports. Both a completed bankruptcy and discharged debts will stay on your report for up to 7 years. A couple of debts in a chapter 13 bankruptcy may even outlive the bankruptcy itself. This is because of the nature of this bankruptcy. It takes about 3-5 years to pay off these debts.
Chapter 7 Bankruptcy
A chapter 7 associated debt can be dropped off within a few months of filing them. After all, assets pay off the debts. However, the bankruptcy remains on the report for ten years. Think of it as ‘you drop the debts, but the report still says you were indebted.’ Discharged debts drop off the report after seven years.
Now that you are in this mess, what do you do?
- Have a plan: Planning is crucial. Seeking counseling from experts in budgeting is a great start; they will guide you on the best ways to budget, amongst other things, which would be essential going forward.
- Take steps to repair your credit through your reports proactively: the easy way to go about this is to contact the best credit repair service in California. Contrary to popular opinion, credit repair experts and specialists can be of immense help if you want to boost your credit.
Well, credit repair agents can see what you do not. If there is one thing people do not do regularly after filing a bankruptcy, it is checking their reports. However, you can do this yourself but, an extra pair of eyes from a credit repair specialist would not hurt, would it?
These experts would do nothing but help you ensure that every account to the smallest cent is accurate in your reports. What this achieves is to help you to dispute negative information from the bureaus, and these repair experts are up for the challenge; they can argue all day. To do it yourself, ensure you check all three repositories down to the last cent.
- Authorized User: you can contact friends and/or family members to make you an authorized user. They give you credit, and you can take it up from there. It can be difficult getting someone to make you an authorized user so that you can utilize an AU (authorized users) trade.
- Secure Credit cards: the major challenge that comes with filing a Bankruptcy is trust. Therefore, to get access to credit, a workable solution is to use secured credit cards. The issuers of these cards give out the card, of course, with specific limits and applicable fees, but only when a deposit is made upfront. It is similar to collaterals that banks collect; using a secured card gives you credit accessibility only with “collateral.”
However, before you jump on it, you should look at the disclosures of the issuer. This card is more comfortable to obtain as the lender is in a “no risk” situation by giving it to you.
- Pay on time: if it is a secured or an unsecured card, your goal after filing bankruptcy should be creating a good impression. Lenders love it when you pay on time; in fact, everybody does. To keep a clean report (positive) and improve your credit scores, this should be what you are looking at.
- Co-signing: this is easy; you get a friend or family member to co-sign with, and you are on your way to getting good credit. The only thing to be wary of is discipline. A slight slip in payments would get you right where you started. Make payments on time or, you would be dinging your report as well as whoever signed you.
- Pay them fast: first, all of your accounts that were in bankruptcy should be included in your report. As such, it is responsible for you to keep paying off those loans you owe. Pay them as timely as possible. You need to show creditors that you are every bit worth the credit.
- Job changing: this is particularly surprising but quite reasonable. Lenders can be unbelievable sometimes. Most of them look a little beyond the application and report you file. As ridiculous as it may sound, it is best if you are able to maintain a job for a long time. This is not suggesting staying stuck in a job that you do not like, but changing jobs 5 to 6 times in 2 years suggests instability, especially after a bankruptcy.
- Get a secured loan: banks can help with this. There are two types of secured loans: upfront payments and loans without upfront deposits. Now, you might not necessarily spend that loan. Keep it in a bank and make it a habit to pay on time.
In summary, bankruptcy is not that terrible. It can do its damage, but recovery is possible. Thoroughly analyze the state of things before taking any actions, and avoid repeating the same mistakes that got you there in the first place.