The Rebirth of Your Credit: Life After Bankruptcy

You have been doing it for years. The hardship it took to raise her, nurture her, always being cautious, and to keep her on the straight and narrow. But somewhere along the way she went astray. You might think I am talking about your daughter, but no. I am talking about… your credit score…..gasp!

Let’s Backtrack

There are many viable reasons to file for bankruptcy. For the last decade, the “keeping up with the Joneses” trend has defined many Americans. Credit card companies made it easy to do so. They furnished card offers to mass audiences, extended borrowing limits, and significantly raised their interest rates. Add those factors with an economic recession and it’s not hard to find ourselves in over our heads. Filing for bankruptcy relief can help clear debts accrued by credit cards.

Filing for bankruptcy relief can discharge foreclosure debt. If you file a chapter 7 bankruptcy the foreclosure process must cease immediately. The court will invoke an “automatic stay” which means you are temporarily “untouchable”. The home lender (creditor) cannot remove you from the property while you are being protected by the automatic stay. It may take more than 45 days after filing a Ch. 7 petition for the lender to go to federal court and ask for the automatic stay to be lifted.

Filing for bankruptcy relief can greatly reduce or eliminate high medical expenses. Many families find themselves in dire straits due to an unfortunate illness or a vehicular accident. Bills that were once important become insignificant to the large medical bills acquired by a loved one. Bankruptcy can provide relief from those high medical costs.

Fast forward

Now that we have discussed some viable reasons to file for bankruptcy relief let’s assume:

  1. You have completed a bankruptcy;
  2. The bankruptcy has been successfully discharged; and
  3. You are ready for your “credit rebirthing”

It is imperative that you know this will be a difficult, yet obtainable, goal. Bankruptcy can destroy even the best of credit ratings. Your credit score and rating will be negatively impacted, and your old debts will remain on your credit report. The responsible party for removing those old debts amazingly enough is your old creditors. As you can imagine they are not in the biggest hurry to help you continue your credit rebirthing path. It can take months, even years, for creditors to respond to your bankruptcy. It will take your initiative on your part to get the fresh start that is desired. Don’t just wait for the creditors to remove or change your credit report or for the report to magically fix itself because it will not.

First, obtain a copy of your credit report. Make sure everything is accurate. Most likely you will still have pre-bankruptcy debts still on them. You will have to send copies to all three major credit reporting agencies of your bankruptcy discharge paperwork to correct the inaccuracies. Make sure you send the paperwork with a cover letter asking them to remove all debts listed in the bankruptcy.

The second step is paying your bills on time going forward after your bankruptcy. This may seem like common sense, but it is a slippery slope that many people end up sliding down. Do not overextend yourself financially. Do not acquire unneeded bills and pay the necessity ones: mortgage/rent, groceries, gas, utilities, taxes, etc…- on time. If you find yourself in a financial struggle DO NOT ignore your bills! Contact your creditors immediately and explain your situation. In most instances a payment plan can be reached to get you back on track.

Thirdly, keep a documented history of the bills you currently pay. In all likelihood, the most expensive bill you comprise is your home-either renting or mortgage. It goes a long way to future credit by showing you have paid your rent or mortgage on time EVERY time. It is recommended you document all your current bills.

Fourth, it is suggested you get a credit card. You may be thinking: What? Isn’t that what got me in trouble in the first place? Don’t worry; there is a smart tactic to utilize for rebuilding your credit. It is advised to apply for a secured credit card. A secured card keeps a cash deposit that becomes the credit line for that account. For example, if you put $300 in the account; you can charge up to $300. You may be able to add to the deposit to add more credit, or sometimes a bank will reward you for good payment and add to your credit line without requesting additional deposits. If that happens, however, it is imperative to spend within your limits. Be cautious when choosing a secured credit card (see scam alert below). Also, do not apply for several cards as that will negatively affect your rating. Research and choose the best card suited to you and apply.

Finally, and the most important, is recognizing the patterns that made you file bankruptcy in the first place and not repeat the same process. Again, sounds like common sense, but you may have heard the old adage “If you do what you always did, you’ll get what you always got”. It is important to build new spending habits to replace the old credit destroying ones.

*SCAM ALERT*  Be very careful of high fees, annual dues, sign up fees, and other charges when choosing a secured credit card. There are reputable companies available to choose from, but there are also others out there to take advantage of your situation. It is recommended to thoroughly research your possibilities.

Plachta, Murphy & Associates, P.C. is a law firm located in Grand Rapids, Michigan and is a member of the LawGuru Attorney Network.

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