Life After Bankruptcy
Getting Back on Track With Credit
Once the bankruptcy is complete, you are discharged of most of your debts. This means that you no longer owe these debts and they cannot be reported against you to the Credit Reporting Agencies. We advise all of our clients to check their credit reports here thirty days after the bankruptcy is complete to ensure that all of the debts have fallen off. If they have not, you can dispute the debt or have one of our attorneys do it for you at no additional cost.
The dispute process tells the Credit Reporting Agency that you think something is wrong with your credit report. The Credit Reporting Agency will forward your dispute to the creditor and ask them to investigate. If they don’t respond in thirty days, the account will be removed. If they respond incorrectly that the account should stay on the report, you can sue them under the Fair Credit Reporting Act and under the bankruptcy code. This type of case will cost you nothing to file – even if we did not originally represent you in your bankruptcy.
We care about our clients and we want them to succeed after bankruptcy. Bankruptcy is no longer the “financial death sentence” that it once was. Most people that file bankruptcy want to improve their credit after filing. The financial management courses that you are required to take as part of the bankruptcy process are helpful, but they may not give you all of the tools you need to rebuild your credit.
Credit card debt is one of the quickest ways to ruin your credit score, but it is also one of the quickest ways to rebuild it. Responsible credit card usage requires that you pay your balance off in full each month. Doing so will save you interest charges and it will show that you are a responsible credit user. If you pay off your credit cards each month and keep your debt to income ratio low, you will see your credit score repair itself quickly.
Bankruptcy
Will I be Eligible for a Credit Card After Bankruptcy?
This is a question that we hear quite often but the answer varies. Most of our clients receive a number of credit card offers shortly after their discharge. This is because a debtor can only receive a Chapter 7 discharge once every eight years. As such, you are a relatively safe person to lend to. Still, many of these offers come with annual fees and high interest. It is better to avoid these cards and try to find a card with no annual fee and a low interest rate – just in case you have to carry a balance some months. One of the best ways to do this is with a secured credit card. A secured credit card is a card that is secured by your own money. Usually this is done by opening a Certificate of Deposit (CD) at a bank or credit union and using that CD as collateral for the credit card. If you default, the bank can take your CD. This minimizes the risk for the bank and leads to a higher chance of being approved with a low interest rate.
Will I be Able to get a Mortgage After Bankruptcy?
Many people worry that filing bankruptcy will affect their ability to buy a house in the future. While bankruptcy can temporarily damage your credit, it often does more good than harm in the long run as unpaid debts and collection accounts fall off of your credit report. When it comes to government-backed loans, there are also restrictions on your eligibility for certain loans depending on when you filed and what chapter of bankruptcy you filed. The chart below will explain what these waiting periods are. In cases where a foreclosure accompanies a bankruptcy, most lenders will base the waiting period off of the bankruptcy; not the foreclosure – even if the bankruptcy is earlier in time.
| Type of Loan | After Chapter 7 | After Chapter 13 | After Foreclosure |
|---|---|---|---|
| VA | 2 years after discharge | 1 year after filing | 2 years after foreclosure |
| USDA | 3 years after discharge | 1 year after filing | 3 years after foreclosure |
| FHA | 2 years after discharge | 1 year after filing | 2 years after foreclosure |
Conforming Loan (Fannie / Freddie) | 4 years after discharge | 4 years after dismissal 2 years after discharge | 7 years after foreclosure |
It is important to set goals and work hard to build or rebuild your credit before buying a home. Having a higher credit score leads to lower interest rates. It is also important that you save up money to make a down payment. Most loans require a 20% down payment in order to avoid paying Purchase Mortgage Insurance (“PMI”). PMI is an insurance policy that protects your lender in case you default on your loan. Paying PMI does not benefit the homeowner, so if you can avoid having to pay it, it means extra money in your pocket each month.
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