Re-Establishing Credit after Filing for Bankruptcy…
Filing for bankruptcy is an option that many people in Texas use to obtain a fresh financial start. The fear of not having any credit in the future should not stop you from filing for bankruptcy or doing what may help you to stop foreclosure, repossession, or simply obtain a fresh financial start. Whether Chapter 7 or Chapter 13, many people filing for bankruptcy in Houston, San Antonio, Austin, and Dallas are concerned with what life will be like after bankruptcy if they file.
For whatever reason, people wrongly believe that once they file for bankruptcy relief that they will never get credit again. Almost all of them want to know how they will reestablish credit after bankruptcy.
If you live in Texas, and have questions about obtaining credit after bankruptcy, contact Texas Bankruptcy Attorney R.J.Atkinson. We can provide you a free bankruptcy evaluation and a free bankruptcy means test to determine your eligibility for bankruptcy as well as answer your questions about getting credit after bankruptcy.
If you watch TV, read the newspaper, surf the internet, or listen to the radio, you will notice all types of advertisements offering credit even with a bankruptcy filing. As long as there is money to be made, companies will extend credit to discharged bankruptcy debtors. Even with a bankruptcy on your record there are places willing to extend credit, at a cost. Although most post-bankruptcy credit comes at much higher interest rates, it is still credit after bankruptcy. After a reasonable period of time, a bankruptcy filer who has received a discharge can reestablish an excellent credit rating by taking a responsible approach.
It is a myth that filing for bankruptcy or having a bankruptcy filing on your credit report will prevent you from ever obtaining credit again. That misinformation is perpetuated by the credit card companies to attempt to prevent you from ever filing for bankruptcy. Either directly or through a subsidiary, these very same credit card companies will likely be the same ones offering you credit at some point after a bankruptcy discharge.
Don’t listen to the ads by credit counseling that bankruptcy is a ten year mistake. After a bankruptcy discharge, you essentially have a clean slate. You are considered by many to be a lower credit risk, since you cannot file Chapter 7 Bankruptcy again for another 8 years. Lenders, finance companies, and the credit card companies know this. They also know that if they extend credit or lend to you after filing for bankruptcy, that you won’t be able to immediately discharge their debt. Additionally, they know that your previous debts have been reduced or eliminated so you can probably afford to pay you debts much better after a bankruptcy.
There is a price for everything, including filing for bankruptcy. Immediately after filing for bankruptcy your credit is going to cost you more than the average consumer. You should be prepared to pay much higher interest rates for credit cards and loans. You may be able to limit the cost of high interest credit rates by paying off your credit cards in full at the end of every month as well as paying extra money towards the principle on other high interest loans. Getting credit after bankruptcy isn’t as hard as you may think.
To reestablish credit after bankruptcy you should consider the following:
- Update Your Credit Report: You should obtain a copy of your credit report from all three credit bureaus and see what is on them along with your credit score so you know where you stand. These reports will probably contain different information so you need to make sure each report is accurate and properly reflects what accounts should have been discharged in bankruptcy. Dispute any inaccuracies using the instructions that the credit-reporting agencies provide, and don’t be impatient as it takes time to correct inaccuracies. If there was an extraneous reason for your bankruptcy, such as a divorce, or sudden illness, be sure to list it on your credit report. Credit reporting agencies allow you to include a statement which in turn gives potential creditors your side of the story. A personal statement on your credit report will not affect your credit score and may help if there is a judgment call to be made on extending you credit or obtaining new employment.
- Open a Savings Account: If you do not currently have one, establish a savings account and start making regular deposits for an emergency fund. Try to open an account with a credit union as credit unions are believed to be easier to establish credit with after bankruptcy. Always keep your account in good standing with a credit union as credit unions also offer car or home loans which in due time may be an option to obtain a loan. You can also try opening an account at a local bank as they may also be easier to establish credit with after bankruptcy as compared to a very large bank. Lenders often look at you savings account and savings habits as one indicator of whether or not you can responsibly handle money.
- Open a Checking Account: If you do not currently have one, establish a checking account with a debit card that has a credit card logo and use the card to pay your bills and expenses. Such an account allows you to pay for only what you can afford yet still be able to use your own money in situations where a credit card may be required such as a rental car, hotel room, or online purchase. Even though these cards won’t help you rebuild your credit, they do help you in cases where a credit card is needed and may add credibility to your profile when applying for a loan as many lenders consider having both a savings and checking account to be a responsible financial decision.
- Don’t Incur Any Additional Debts: Although this seems like a blatantly obvious thing not to do immediately following a bankruptcy, many people even 1 day out of bankruptcy rush right out and finance something. Always consider necessity over luxury; do not purchase anything you cannot afford. Any debts after bankruptcy should be incurred as necessity and only after careful consideration.
- Pay Your Mortgage or Rent on Time: If you rent, you should pay your rent on time. Later on you may have to use your landlord as a reference to rent or buy another property. If you have been able to keep your home in a Chapter 7 or repay an arrearage through a Chapter 13, you should continue make your payments on time. Remember that late payments may get reported to the credit bureau, which will severely damage your credit further than it may be. Late mortgage payments are never good, but they are especially not god after obtaining a discharge in bankruptcy.
- Apply for a Secured Credit Card: Some banks may be more willing to give you a secured credit card after bankruptcy rather than extending you any kind of unsecured credit. With a secured credit card, you deposit money into a special account with the bank. The bank in turn issues a credit card with a limit equal to the amount you deposited. Make certain that the bank will report your good payment history to the credit bureaus. These are no-risk deals for the banks because if you don’t pay as agreed they will take the money from your deposit. Over time with you timely payment history, your credit limit may be increased above the amount deposited or may someday become an unsecured account. If you were able to retain a credit card through your bankruptcy, use it every once in a while for purchases and pay it off at the end of the month as this information will be reported to the credit bureaus.
- Apply for a Retail Store Account: Sometimes small department stores, appliance dealers, and furniture stores offer credit, especially if you put down a significant down payment. Now it’s not a good idea to buy something simply for the sole purpose of establishing credit or to obtain a credit reference, but if the item(s) are necessary and you would be purchasing them anyway, then it could be beneficial for you to open such an account. Before opening a retail store account you should make sure that the merchant will report your timely payments to the credit bureaus.
- Live within your means: You should set up a budget and stick to it. Make responsible choices when comes to purchases. Don’t overextend yourself. If you don't have the money to buy something then don't buy it. Limit your purchases to only what you need and try to save money as opposed to spending it. Simply put, live within your means.
- Don’t Apply for Credit More Often than Every 6 months: If you apply for a loan, a retail account, credit card, or credit limit increase and get turned down, you will need to continue to you’re your timely payments and reapply later. Every time that you apply for credit your credit score will go down a few points. Reapplication for credit cards or loans that have been declined can severely affect your credit rating. Credit inquiries can stay on your report for up to 2 years. Potential creditors see multiple inquiries and repeated credit applications, with or without a bankruptcy filing as a red flag. Take your time and be patient as credit will come. If you do apply for credit and get turned down you can request that the creditor provide you an explanation as to why you were denied and what can be done to improve your chances for approval in the future.
There Is Credit After Bankruptcy… There Is Life After Bankruptcy…
Remember, it’s not as simple as file bankruptcy today and reestablish good credit tomorrow. Reestablishing credit after you have filed for bankruptcy is a gradual process that takes a little time, a number of responsible choices, and good decisions to accomplish. Bankruptcy is not the end of your credit life. The bottom line is that you can establish and rebuild your credit after a bankruptcy discharge.
Although filing for bankruptcy may not be for everyone, it may give you the fresh financial start you need. The fear of not having any credit in the future or the fear of not being able to reestablish credit after bankruptcy should not stop you from filing for bankruptcy if you need to. Stopping foreclosure, repossession, or doing what may help you and your family to get peace of mind and a fresh financial start is probably a more responsible approach than doing nothing.
If you live in Houston, San Antonio, Austin, Waco, Victoria, Dallas, or most anywhere in Texas, contact the Texas Bankruptcy Attorneys at The Law Offices of R.J.Atkinson for a free initial consultation to see how we can help you deal with your debt.
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