As anyone contemplating bankruptcy can tell you, it is nearly impossible to live a normal life today without credit. The bankruptcy laws were enacted largely to give Americans without credit a fresh start. These laws provide the debt stricken with an alternative to staggering year after year with an ever increasing debt burden and an ever declining credit rating.
Many Oregon and Washington filers are surprised to find that their credit scores actually improve simply because their debts have been eliminated in the bankruptcy. While the fact of the filing can remain on a credit report for ten years, the credit score, the important part, starts improving immediately.
Within the first couple months of filing you will start to receive credit card offers from companies that used to decline your requests for credit. Within two years of filing, government mortgage lenders are required to offer you the same rates of interest as anyone else so long as you’ve paid your debts in a timely manner after bankruptcy. Because you can only file Chapter Seven every six years, many lenders will regard you as better credit risks, the day after you file for bankruptcy.
Tips on reestablishing your credit rating
The idea is to file once and get it right so that you never have to file again. Here are some tips on reestablishing your credit rating so that you can make bankruptcy a true financial turning point:
- Apply for gas credit cards and store cards at businesses where you would normally just pay in cash.
- Apply for a secured card where you deposit cash and charge against it. Pay advances back over two months so that they will be reflected as positive marks on your credit report.
- Find a friend or relative to cosign for you on a loan and pay it on time.
- Look for mortgage brokers and car dealers that hold themselves out as “bankruptcy friendly”. Try and buy a used car so you do not get hit with the depreciation that occurs during the first two years of a new car purchase.
- Stay away from payday loans that are at high interest rates and are a “bad credit” trap.
- Write a letter to each credit reporting agency explaining the circumstances that lead to you filing. You are entitled to put a statement into your credit report explaining why you had to file bankruptcy. If circumstances beyond your control were the cause, this should help.
- Open a savings or checking account. Lenders may look at this to determine if you can responsibly handle money.
- Live within your means. Remember not to unnecessarily increase your debt to income ratio by taking on credit to purchase luxury items that you DO NOT NEED. Your payments on consumer debt should equal no more than 20% of your disposable income after costs for housing and a vehicle.
- Pay your rent and utility bills in a timely manner for a year.
- Pay your reaffirmed, pre-bankruptcy obligations on time.
- Apply for a secured credit card where you deposit cash and borrow against it. Do not purchase consumables (food, gas and other things you will use up within a few days) with a credit card. You want to be able to pay off the purchase before the item is used up.
At Pacific Bankruptcy, P.C., our goal is not only to help our clients get a fresh start, but to help them make the most of the opportunity. The idea is to file once, get it right and make the most of the opportunity so that you never have to again. To learn more, please call one of our attorneys toll free (503) 352-3690 or just fill out a free evaluation form and one will call you.