Monitoring Your Credit Report
Also, it’s essential to examine your credit report for mistakes after your discharge. If you notice an error, correct it promptly so that it doesn’t derail your efforts to rebuild your credit. You can check your credit report for free using annualcreditreport.com . You’re entitled to one free copy per year from each of the three reporting agencies. Requesting a report from one of the three agencies every four months is an excellent way to keep track of changes. Also, all of the three reporting agencies allow you to file a dispute online.
Chapter 7 Bankruptcy And Credit Card Debt
When you file for Chapter 7, most of your debt can be discharged. However, Chapter 7 requires you to give up all of your non-exempt property. The trustee will sell the property and use the money to pay off creditors. Most credit card debt is viewed as non-priority, unsecured debt, so its discharged with Chapter 7. Tax debts and child support are two examples of priority debts, which cannot be discharged with Chapter 7 bankruptcy.
Although it doesnt make sense in most situations, its possible to file for Chapter 7 and reaffirm all debts except for credit card debt. In this situation, an individual is liable for reaffirmed debts when the bankruptcy is finished.
Why Do People File A Chapter 7 Bankruptcy Case
There are many reasons to file bankruptcy. Some of the common reasons people file Chapter 7 include:
Unemployment or a temporary decrease in income
Accident injury or sudden illness that results in substantial lost wages
Medical bills that the person cannot pay
Death of a spouse or family member
Separation or divorce
Loss of a business or downturn in business
Too much credit card debt
Poor financial management skills
Foreclosures or repossessions
Debt collection lawsuits and personal judgments
The Bankruptcy Court does not judge a person for why that person needs to file for debt relief. The Chapter 7 trustee assigned to your case does not judge you either.
If a person cannot pay their debts for whatever reason, that person may qualify to file a Chapter 7 bankruptcy case if they meet the income requirements to file a Chapter 7 in their state.
The Most Important Step: Save Save Save
Taking these steps are all within your power to do and will help your credit score rise. However, there is another very important thing to do in order to help you qualify for a loan and that would be to save some money.
The financial institutions that we have spoken with have advised that it is a huge plus from their perspective when they see someone that has managed to build up some savings prior to applying for a loan. Building up some savings is an indication of several good financial qualities:
Going into any loan application with a downpayment should help you not only qualify for the loan but also obtain a loan at a lower interest rate.
Learn More About Bankruptcy By Taking Bankruptcy 2
After filing bankruptcy papers, you will need to complete a Debtor Educational Course at an approved credit counseling agency. It costs between $10 and $50 and can be completed online or over the phone.
Although the courses purpose is to help you make better financial decisions for the future, it doesnt offer any legal advice on filing bankruptcy. Learn how to make a budget and not take out high-interest loans.
If you fail to complete the course or submit the certificate from a credit counseling agency to the court, you wont be eligible for bankruptcy discharge.
Avoid Unsecured Credit Cards After Bankruptcy
There are a handful of unsecured credit cards aimed at consumers with bad credit, such as the . The majority of these cards come with very low credit limits, high APRs of between 25% and 29.99%, and annual fees that can easily exceed $100 a year. Some also have a one-time processing fee to open the account and monthly servicing fees on top of the annual fee. In short, you pay a lot for the privilege of avoiding a security deposit.
Similarly, store credit cards also have lower qualification standards, so a bankruptcy may not disqualify you. But these, too, come with low limits and high APRs, and usually have limitations on where they can be used.
Because of their fees, unsecured credit cards for bad credit typically are more expensive than secured cards. There are plenty of secured cards that dont charge annual fees, and you can get your security deposit returned as long as you pay your balances off in full every month. But with these unsecured cards, the fees you pay wont be returned.
Best For Avoiding A Credit Check: Opensky Secured Credit Visa Card
Heres why: Theres no credit check necessary for the OpenSky® Secured Credit Visa® Card application process. Instead, your credit limit is determined based on your refundable security deposit, starting at $200. For those focused on credit building after bankruptcy, this benefit is especially enticing, because a hard credit check can ding your credit a bit.
Read our review of the OpenSky® Secured Credit Visa® Card for more thoughts on this option.
How Luftman Heck & Associates Can Help
Prior to trying to get any type of new credit during bankruptcy, you should speak to a Cleveland bankruptcy lawyer at Luftman, Heck & Associates. Sometimes it makes more sense to wait until your bankruptcy proceeding is over before taking out loans. Once its over, you may be better off taking small loans that you can easily repay and use to rebuild your credit.
LHA can evaluate your particular situation and give you advice on whether or not obtaining credit during your Chapter 7 or Chapter 13 bankruptcy is a smart move. Contact us today by calling 586-6600 or emailing .
Be Smart About Applying For New Credit
Each new credit application prompts a on your credit report. Too many hard inquiries in a short period of time can hurt your credit score because lenders see it as risky behavior.
If youre frequently denied for new credit cards, their requirements might be too high for you current credit profile. Keep an eye on your credit and be aware of issuers underwriting standards, so you apply for credit more wisely.
Try a or become an authorized user first. You can also sign up for a rent reporting service that reports your rent payments to the credit bureaus. Having a more positive credit history will increase your chances of being approved for credit cards with stricter requirements over time.
Buying A Home After Bankruptcy
As noted above, a bankruptcy will linger on your credit report for up to 10 years. This, however, does not mean you cannot qualify for a mortgage for 10 years.
Still, lenders want to be confident about the borrowers ability to repay. Besides all the usual investigation into job and income stability, theyll scrutinize at the applicants payment history.
After a bankruptcy, then, youll have to temper your new-house fever for, probably, at least a couple of years. Meanwhile, you can distinguish yourself as someone who makes timely payments on your secured credit card, and possibly your secured loan or car loan.
Also, the longer you can wait after bankruptcy, and the better you can rebuild your credit, the more likely you are to strike a better deal on your interest rate. A half-point difference on a 30-year fixed-rate loan could add up to nearly $100 a month, and tens of thousands of dollars over the life of the loan.
Once youre in the market again, after about two years be sure to include government-insured loans in your shopping. These tend to be more forgiving of bad credit scores. Investigate FHA- or, if youre looking in a rural community, USDA-backed loans. Veterans whove been two years with clean credit post-bankruptcy can access their VA benefits.
Getting A Credit Card After Bankruptcy
Your first step toward getting a credit card after bankruptcy should be checking your credit report and so you know where you stand when researching various cards’ approval requirements. If, like many others who file for bankruptcy, you have credit reports that include late or missed debt payments, maxed-out credit cards, or accounts that have been turned over to collections agencies, your credit scores may have dropped into the fair or poor credit range even before taking a hit from the bankruptcy. While that may make it tough to get a conventional credit card or loan, there are strategies that can help you start rebuilding credit following a bankruptcy.
When looking for the right credit card, your best bet will likely be a secured credit card, which requires you to put down a cash deposit. The deposit amount typically equals the card’s borrowing limit, and if you fail to pay your card balance as agreed, the card issuer can take your deposit to cover the debt. Otherwise, a secured card works the same as a conventional card: You can make purchases up to the borrowing limit, repay them over time as long as you make a minimum monthly payment, and you’ll be charged interest on any unpaid balance you carry forward month to month.
Secured cards you may be able to qualify for after a bankruptcy discharge include:
Examples of unsecured cards available to individuals with credit scores of 579 or lower include:
Restrictions On Obtaining Credit During Bankruptcy
Obtaining credit during bankruptcy can be challenging. If you file for a Chapter 7 bankruptcy, you can apply for credit as soon as the debt is discharged. With Chapter 13 bankruptcy, you will need to receive prior approval from the court or Chapter 13 trustee. Additionally, your plan payment must be current at the time of the request.
If you would like to get new credit during your Chapter 7 or 13 bankruptcy case, you should consult an experienced Cleveland bankruptcy attorney at Luftman, Heck & Associates. We will explain your situation to you and help you understand obtaining credit during bankruptcy.
What Happens To Credit Cards During Bankruptcy
When your bankruptcy filing officially starts you will turn in your credit cards to your Licensed Insolvency Trustee, who will then return them to the credit card issuer. The exception to this is if you have a credit card that was issued to a third party such as your employer or spouse.
After your legal bankruptcy documents have been signed and registered with the Office of the Superintendent of Bankruptcy, your Licensed Insolvency Trustee will contact your credit card lenders and other creditors to advise them of your bankruptcy filing. This will result in an immediate stay of proceedings meaning your creditors will be prohibited from contacting you for payment or charging you further interest on your accounts. Once you have worked through the bankruptcy process and received an official discharge, or release, from bankruptcy your credit card debts will be forgiven.
Most bankruptcies will last for 9 months from the date of signing to the official discharge, during which time you will generally:
- Complete a monthly budget form tracking your income and expenses.
- Have two private financial counselling sessions.
- Provide your Licensed Insolvency Trustee with any applicable tax information so they can get your tax returns filed and caught up if necessary.
- Pay a monthly cost of $200 per month for the 9-month period until you are discharged.
Using A Secured Credit Card To Rebuild Your Credit After A Bankruptcy Discharge
Bankruptcy will help wipe out your debt and get your life back on track financially. However, after you have eliminated your debt, you will need to take steps to rebuild your credit. Filing for bankruptcy will temporarily hurt your credit score and having good credit is important. Without it, itâll be very difficult to buy a new car or home. Even most car rental companies perform a credit check before they will approve your request for a rental car.Â
Bad credit may even prevent you from being approved to rent an apartment. To determine your creditworthiness, lenders consider your credit score record. After filing for bankruptcy, your credit score will drop, but by the time you filed for bankruptcy, chances are that you had already fallen behind on your payments and your credit score was already negatively impacted. As a result, filing for bankruptcy isnât the end, itâs a new beginning. After receiving your discharge, you can take immediate steps to build credit. People sometimes think itâs impossible to get approved for new loans after filing for bankruptcy, but thatâs not true, it just takes some time and effort.Â
Do I Qualify To File A Chapter 7 Case
You must meet income requirements to qualify to file a Chapter 7 bankruptcy case. If your average income is below the median income for your state, you should qualify to file a Chapter 7 case. However, if your income exceeds the state median income, you may want to talk to a bankruptcy attorney.
If your average income falls below the state median income, it means you pass whatâs called the Chapter 7 Means Test. If you âpassâ the Means Test, you are typically eligible for a bankruptcy discharge under Chapter 7. However, if you âfailâ the first section of the Means Test, you may still qualify to file a Chapter 7 case.
The second section of the Chapter 7 Means Test subtracts allowable expenses from your monthly income. The amount of money remaining after you subtract all allowable expenses is your disposable income. Individuals who do not have disposable income or who have very low disposable income may still qualify to file a Chapter 7 bankruptcy case.
So, What Happens if I Donât Pass the Chapter 7 Means Test?
If you do not qualify for debt relief under Chapter 7, there are a couple things to consider. You can try talking to a lawyer to make sure you donât qualify. If not, you might consider filing for Chapter 13.
Reaffirming Credit Card Debt In Bankruptcy
If you have credit cards when you file bankruptcy, then any card on which you owe money will be listed among your debts. Most credit card companies will allow you to keep the card if you reaffirm the balance and enter into a new agreement.
Reaffirming credit card debt in bankruptcy should be used only as a last resort, however, because once you do that, your debt won’t be discharged. Think hard about whether you really need that card, and read about your other options below.
Still, if you have a card with a very low balance, you might consider reaffirming. Ultimately, creditors will make the decision of whether this is an option in your specific case. But because companies don’t want to incur loss because of discharged debt, most will allow you to reaffirm the debt.
Can Bankruptcy Stop Credit Card Collections
Bankruptcy CAN stop collection attempts from credit card companies that include lawsuits or other forms of legal action. Theautomatic stay offers protection from collection attempts and stays in place until your case is completed. The stay goes into effect when you file bankruptcy, either Chapter 7 or Chapter 13 .
Can I Apply For Credit
After your bankruptcy has ended, there is no restriction on applying for loans or credit. Its up to the credit provider to decide if they will lend you money.
Your credit reportwill continue to show your bankruptcy for either:
- 2 years from when your bankruptcy ends or
- 5 years from the date you became bankrupt .
It can take time to rebuild your credit rating.
For more information regarding your credit report, contact a credit reporting agency. Information about credit reporting agencies is available at ASIC’s MoneySmart.
Receiving Credit And Other Offers After Filing Chapter 7 Bankruptcy
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In a Nutshell
Court cases and documents filed in court are part of the public record. The same holds true for bankruptcy cases. As a result, companies searching the court records will know that you filed for bankruptcy and will start sending you advertisements in the mail offering you their services, including offers to apply for credit. However, before you accept that offer for a new credit card or car loan, continue reading to learn what you need to consider and what your best options are.
Best For Military Members And Their Families: Navy Federal Credit Union Nrewards Secured Credit Card
Heres why: Military members, veterans and their families emerging from a bankruptcy can take advantage of the cards low variable APR on purchases and balance transfers, plus a few bells and whistles that elevate this card above the rest.
Heres an important note before we get into the benefits the eligibility requirements to apply for nRewards® Secured Credit Card are strict. Youll need to be a member of Navy Federal Credit Union, which is open to all branches of the U.S. armed forces, veterans, Department of Defense officials and their families.
Cardholders earn one point per $1 spent on purchases. Points can be redeemed for cash back, statement credits, gift cards and merchandise. There are no annual fees or foreign transaction fees, too. Plus cell phone protection and a rental car collision damage waiver also come standard.
After six months, Navy Federal will review your account activity and may upgrade you to an unsecured credit card and return your deposit.
Learn more about the best credit cards for active-duty military personnel.
How To Apply For Credit Cards After Bankruptcy
You can follow these steps to apply for after bankruptcy credit cards in Canada:
Getting a credit card during bankruptcy
You should avoid applying for credit cards or using your existing credit cards shortly before filing for bankruptcy. Your credit card provider can say that this credit use had dishonent intent, and may result in your credit card debt not being discharged. Your existing credit cards may be closed during the bankruptcy process even if theyre fully paid off.
Why Would I Be Turned Down For An Unsecured Credit Card
When you apply for a credit card, your issuer considers two fundamental factors: your income and your credit rating. Even if you have a steady job and good incomeand even if you’ve paid down your previous debts in fullyour credit rating may tell a completely different story. With a low rating and bankruptcy on your record, you will be considered a high-risk customer.
The Type Of Bankruptcy Counts
There are two basic types of personal bankruptcies:
- Chapter 7. This is where all of your debts are eliminated and any assets you own that arent exempt will be sold off and used towards your debts. This will wipe out what you owe your creditors but also anything you own of any value. Chapter 7 allows for a fresh start, as once the bankruptcy is discharged, or completed, youll no longer have any liability towards creditors, but your credit score will be severely damaged.
- Chapter 13. With this type of bankruptcy, your debts are restructured, which means that you and the creditor come to an agreement over how much of the debt you will repay within a time frame of three to five years. Any remaining portion of your debt is forgiven. Although this type of bankruptcy is less damaging to your credit, it still has a strong negative effect.
Keep Up With Payments On Existing Loans And Credit Cards
Instead of trying to get funds right away, focus on making timely payments on existing loans or credit cards every month to help reestablish your credit. Payment history makes up 35 percent of your FICO score, so making on-time payments is one of the best ways to build your credit and show that you can be financially responsible.
Why this matters: Taking the proper steps to rebuild your credit after filing bankruptcy will not only improve your financial behaviors but show future lenders your creditworthiness.
How to get started: Work on making timely payments by signing up for autopay. At the least make the minimum payments. If possible, make extra payments.
How To Get Credit After Filing Chapter 7 Bankruptcy
Last week, I wrote about the challenges of accessing credit after filing a Chapter 7 Bankruptcy case. I concentrated on retail charge cards and revolving credit cards as two commonly-desired credit products that can be accessed after a bankruptcy case has been filed, and the debtor has received a discharge. This week I will look at the mechanics of obtaining approval for credit cards. Then I will look at the challenges of larger credit products – particularly vehicle loans and real estate mortgage loans.
How Bankruptcy Affects Credit
A bankruptcy filing is the most severe negative event that can appear in a credit report, and it can do deep, long-lasting damage to your credit scores.
A Chapter 7 bankruptcy, which eliminates all your debts, stays on your credit report for up to 10 years. A Chapter 13 bankruptcy, which restructures your debts and provides creditors partial repayment, will remain on your credit report for up to seven years.
When you file for bankruptcy, the best your creditors can expect to collect is a fraction of the money you owe them. It’s understandable, then, that bankruptcy typically makes lenders wary of issuing you new credit. Some lenders turn down any credit applicant with a bankruptcy on their credit report. Other lenders will consider applicants with older bankruptcy entries, but typically charge high interest rates and fees because they consider bankruptcy filers risky borrowers.
As long as a bankruptcy appears on your credit reports, it will tend to lower your credit scores. But its impact on your scores will diminish over time. Credit scoring models such as those from FICO and VantageScore® give new information greater weight than older information, so adopting good credit habits can help you start rebuilding your credit scores, even immediately after you’ve filed for bankruptcy.
Check Your Mailbox For Credit Card Offers
Some credit card issuers, knowing you cant file bankruptcy again for several years, will be quick to send offers for their credit cards. These credit card offers are some of your best chances of getting approved, so keep your eye on the mail.
Keep in mind that pre-approved credit card offers dont necessarily guarantee approval. Youll still have to apply and go through the application approval process. If youre denied, the explaining why your application was turned down. Also, remember that each card application you file will ding your credit score, so don’t apply for too many at once, and wait four to six months between rounds.