Consumer Credit Counseling

The short answer is no.  This is because while you are in bankruptcy you should not be incurring new debt without court permission.  Most of the time a credit card will not issue a card to someone who is in an active bankruptcy case, because they do not want to violate the bankruptcy code and face sanctions from the bankruptcy court.  Furthermore any cards that a debtor has prior to filing the case will be discharged in the bankruptcy case, except under rare exceptions.  Therefore the debtor will not be able to continue to use their cards.

The entire point of a bankruptcy case is to get a fresh start and to get rid of the debt and allowing a debtor to continue to incur debt while in the bankruptcy case complicates and frustrates this goal.  When preparing to file a bankruptcy case a debtor must take a look at their finances and make sure that they are living within their means and question why they would have a need to continue to spend on credit.

If you have any questions about bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.

In part two of our blog on credit scores, we will discuss how to rebuild your credit score after completing a bankruptcy.

 
While the filing of bankruptcy places a negative report on your credit, rebuilding your credit rating after completing a bankruptcy is a manageable task.  Once completing a bankruptcy, the debtor’s credit report will not reflect a positive credit history, which makes up the largest influence on the overall credit score.  Also included in credit history, is the public record of filing bankruptcy.
One method of keeping at least some positive credit history after completing a bankruptcy is reaffirming debts during a Chapter 7.  In the typical case, debtors have the option of reaffirming their secured debts, including mortgages, car notes, and debts secured by other property such as furniture or electronics.  After reaffirming those debts, the terms essentially stay in place as if they were not including in the bankruptcy.  The payment history for reaffirmed debts should continue to reflect the payments made prior to, and after, the bankruptcy has been completed.
 
Even if there are reaffirmed debts after a bankruptcy, debtors will need to establish a positive credit history to help rebuild their credit after the completion of their case.  One method of establishing a positive credit history is to open, and use, a credit card after discharge.  While many debtors believe they will be unable to qualify for a credit card after bankruptcy, they will likely get inundated with credit card offers soon after their discharge.  Although there is generally a negative perception to one’s ability to maintain credit with a bankruptcy on their record, many lenders will offer credit to recent bankruptcy filers because their debt has likely been eliminated and they are ineligible for another discharge for eight years.  
 
It is important to note that any credit cards obtained after a recent discharge will likely come with unfavorable terms and high interest rates.  Accordingly, it is generally considered the better practice to open one or two secured credit credits after bankruptcy.  Secured credit cards work like regular credit cards but require a security deposit to open which generally range between $500-$1,500.  The deposit typically becomes the credit limit for the card.  As with unsecured credit cards, each offer varying terms and differing interest rates.  When using the card to establish and build credit, it is important to use the card each month and pay off the entire balance.  Prior to signing up for a secured credit card, you will want to ensure the issuer reports to all three major credit bureaus.  After a period of making regular payments on time, you will eventually qualify for an unsecured credit card at near market terms.
 
After building a positive credit history through the use of credit cards, you can eventually look to purchase a car or even a house.  Federal Housing Administration (“FHA”) loans are available to former debtors after 2 years from a Chapter 7 discharge.  In addition, FHA loans may be obtained during a Chapter 13 after one year of timely plan payments.  These timelines may be adjusted if the borrower provides an explanation of extenuating circumstances which led to the bankruptcy filing along with their application for the FHA loan.
 
When working to reestablish your credit and build a favorable credit score, it is important to continue to monitor your credit report for errors and inconsistencies.  While there are Credit Repair companies willing to assist, these companies are generally perceived as a scam.  Disputes to information on the credit report can be done effectively on a “Do-it-Yourself” basis.  Most disputes can be completed online at through the websites for the three major credit reporting companies.
 
GUIDELINE FOR IMPROVING CREDIT
 
Below is a suggestion for steps to take following bankruptcy to rebuild credit:
 
1) Get a Credit Report and Check Your Score
 
Credit reports can be obtained for free from each agency once per year.  After completing a bankruptcy, it is important to review the credit report to check for any errors.  Make sure debts which were discharged are reflected correctly.  Also ensure that any debts which were reaffirmed continue to show the credit history.  Dispute any inconsistencies with the credit agencies.  
 
2) Open a Bank Account
 
If you do not already have a checking or savings account, open a new account.  Get an account that allows automatic bill pay and set it up to prevent missed or late payments.
 
3) Apply for a Secured Credit Card
 
Although you will receive offers for unsecured credit cards shortly after completing bankruptcy, secured credit cards will likely provide better terms and lower limits which should help prevent falling back into debt.  The credit limit on secured credit cards is generally the deposit required to open the account.
 
4) Pay Off the Balance Every Month
 
Make sure to use the card to make small purchases every month.  Having an open credit card without any usage does not help build credit.  It is also important to pay the balance in full on time each month.  The amount of debt owed makes up a large portion of the credit score.  Because the credit limit is likely to be small when opening secured credit cards, it is best to not leave running balances on the cards from month to month.  Paying off the balance in full also prevents accruing interest.
 
5) Continue to Monitor Your Credit
 
Continue to pull a credit report and monitor for inconsistencies.  Make sure any new accounts are showing their timely payments and continue to dispute any incorrect information.  As previously mentioned, you are entitled to one free credit report per agency per year.  It is best to spread these free reports over the year and obtain a report every 3-4 months from one agency at a time.

If you have any questions about Chapter 7 or Chapter 13 Bankruptcy, contact the attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.

  In this series on Credit Scores, I will discuss the various types of credit reports and the factors which influence your credit score.  Credit reports consist of detailed information regarding an individual’s current and past financial obligations.  Credit scores are essentially a numerical grade of the information contained within the credit report.  These scores are used by credit card issuers, auto lenders, mortgage companies, and other lenders to judge the applicants financial responsibility prior to issuing credit. Remember you can obtain your free credit report from each agency one time per year at www.annualcreditreport.com.  Contact the attorneys at Fears Nachawati with any questions. 

 
TYPES OF CREDIT SCORES
  1. FICO Scores – FICO (otherwise known as the Fair Isaac Corporation), created the first credit scores in the 1950s. Since their creation, FICO scores remain the most widely used scoring model by lenders with over an estimated 90 percent of the market share in 2010 of scores sold to firm for use in credit related decisions.  Although there are different FICO scoring models, the scores generally range from 300 to 850.
  1. Credit Reporting Agency Scores – Credit Reporting Agencies (Equifax, Experian and TransUnion) each utilize their own scoring model, which causes scores to vary among the three main agencies.  These scores were originally created to predict performance on credit obligations.  However, today these scores are primarily used as educational scores for consumers.  Each agency uses differing ranges of scores.  For example:
    • Equifax’s Credit Score ranges from 280 to 850.

    • Experian Plus Score ranges from 330-830.

    • TransUnion TransRisk New Account Score ranges from 300-850.

  1. VantageScore – VantageScore is produced by VantageScore LLC, which is a joint venture of the three credit reporting agencies.  It was developed as a competitor to FICO. VantageScore results range on a scale from 501-990.
CALCULATING THE CREDIT SCORE
 
While there are multiple credit scores, as noted above, the credit score of primary concern is the FICO score.  The FICO score is generally based on five categories, each of which are weighted to have a varying impact on the overall score.  These categories, sorted by overall importance, are:
  • -Payment History (35%)
Credit payment history is one of the most important factors in a FICO score.  Lenders, who want to know whether you’ve paid past credit accounts on time, place a heavy reliance on payment history.  While a few late payments may not have a major impact on the credit score, numerous late payments, or a history of routinely late payments, will significantly drop the credit score.  FICO specifically looks at how late the payments were made, how much was owed, how recently the late payments occurred, and how many late payments are on the account.  Typically, late payments are reported as either 30 days late, 60 days late, 90 days late, 120 days late, 150 days late, or a charge off.  It is important to note that when a debt is “charged off,” it does not mean that debt is no longer owed.
 
Account types considered for payment history include credit cards, retail accounts (i.e. department store credit cards), installment loans, finance company accounts, and mortgage loans.  Public records and collection items also fall under the payment history category, which include the filing of bankruptcy.  Paying accounts on time, or a good track record on most of your accounts, will have a positive influence and increase your credit score.
 
  • Amounts Owed (30%)
The second leading influence on credit scores is the amount of debt owed on specific accounts.  Credit scores are affected by the number of accounts you have with balances.  In addition, the proportion of credit limits utilized will affect the credit score as well.  For example, when someone is approaching their credit limit on a card, this may indicated that they are overextended and more likely to make late or missed payments.
  • Length of Credit History (15%)
As the category suggests, the length of time your credit account has been open influences your credit score.  Having numerous recently opened accounts will negatively impact your score.  In addition, the length of time from your last activity on an account may also lower your score.
 
  • Types of Credit in Use (10%)
Credit scores are effected by total number of open accounts you have and the overall makeup of that mix of credit.  It is not necessary to have each type of credit account considered to establish good credit.  However, it is also important not to open a lot of accounts you do not intend to use.  
  • New Credit (10%)
The number of recently opened accounts will effect the credit score.  Opening multiple credit cards in a short period of time may negatively effect your score.  In addition, running up high balances on recently opened cards will also have a negative impact.  
 
Credit inquires also fall into the New Credit category when determining the credit score.  Checking your credit report will not effect your credit score as long as the report is obtained directly from the credit reporting agency.  Reports from all three may be obtained for free from www.annualcreditreport.com.  Multiple credit inquires from creditors may negatively impact your score.  However, numerous inquires in a short period of time, such as when shopping for a car, are typically treated as a single inquiry and will have little impact on the overall credit score.
 

Most Facebookers (noun. A person using the social networking website Facebook) know that “friending” someone can enhance or soil a personal reputation. Companies use social media regularly as part of the hiring process. A person’s online reputation may be the difference between getting hired and losing a job opportunity.

Recently it was discovered that Facebook patented technology that could allow lenders to use a borrower’s social network to determine whether he or she is a good credit risk.
 
The technology averages the credit ratings of the borrower’s Facebook friends and provides this score to a lender for consideration of the borrower’s credit application. The patent states: “If the average credit rating of these members is at least a minimum credit score, the lender continues to process the loan application. Otherwise, the loan application is rejected.” 
 
This is the ultimate example of “guilt by association” that your mother always warned you about.
 
Facebook has not commented regarding this technology, and it is not clear whether it will ever be used. The federal Equal Credit Opportunity Act strictly regulates what criteria creditors can use when deciding on a loan — things like income, expenses, debts and credit history determine creditworthiness.
 
For now, it may be prudent to consider the possible implications (and future risks) of friending someone on Facebook. That’s not just good advice — it could make a huge difference to your future financial success.
 
If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.
 

Note: This article is a continuation from Part One of the Simple Guide to Rebuilding Your Credit after Bankruptcy.

Six Months after Discharge
  • Apply for an unsecured credit card. An internet search will help in your research to find unsecured cards for individuals with a recent bankruptcy discharge. If you are declined, call the company immediately and request a reconsideration. Charge on this card monthly, but no more than $100 on this card, ever. Pay this card off completely every month as soon as you get the bill.
  • Apply for a gas or retail store card. Gas and retail cards typically don’t require applicants to have good credit and, in fact, cater to folks with blemished credit.
One Year after Discharge 
  • When your secured loan at the credit union ends, request an unsecured loan between $1,000 and $2,000. You should also discuss options for an unsecured credit card through the credit union.
  • Obtain new credit bureau reports from http://www.annualcreditreport.com and review these reports for accuracy. It is surprising how often discharged debts can “magically” reappear on an individual’s credit report.
  • A new vehicle purchase should be put off until at least one year after your bankruptcy discharge. A credit score can recover quickly after bankruptcy, and many captive finance companies (e.g. Ford Motor Credit) require both a reasonable credit score and recent history of on-time payments. A new vehicle loan is a major credit purchase, and on-time payments will propel your credit score upwards and demonstrate responsible management of significant credit. 
Two Years after Discharge
  • Obtain new credit bureau reports from http://www.annualcreditreport.com. Review these reports for accuracy. Many bankruptcy debtors are able to obtain an above-average or even excellent credit score within two years after bankruptcy.
  • A home purchase is available to many debtors two years after a bankruptcy discharge. Most government-backed loans require a two year “seasoning” after a bankruptcy discharge. Speaking with your credit union about their loan products is a good first step in the home purchase process.

If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.

This is a simple guide for rebuilding your credit after a bankruptcy discharge. Recovering from the effects of bankruptcy takes time and attention. This guide suggests a basic 24 month timeline for rebuilding credit.

 
T minus One
Before your bankruptcy case is discharged, be sure to review your bankruptcy schedules and consider how your financial situation may have changed. It is very important to understand how your finances will be impacted by bankruptcy court’s discharge order. Some questions to ask are:
1.Which debts are discharged?
2.Are any other debtors impacted by this discharge (such as friends or family)?
3.Which debts are not discharged?
4.Do any liens survive the discharge?
5.Has the bankruptcy court avoided any liens on secured property (or judgment liens)?
6.Have I discharged my personal obligation to pay on a secured debt, but a lien survives?
 
At this point it is critical to have a clear and complete knowledge of who and how much you owe. Any debts that survive the bankruptcy must be paid on-time.
 
Immediately after Discharge
Congratulations! Rebuilding your credit begins now.
  • Collect all your bankruptcy paperwork, including a complete copy of your bankruptcy petition, schedules, and discharge order, and put these documents in a safe place.
  • Sign up for a three bureau credit monitoring service. You don’t want any surprises popping up on your credit. 
  • Obtain a copy of your credit report from each of the main credit reporting bureaus: Transunion, Experian, and Equifax. One free report from each of these bureaus is available every twelve months from http://www.annualcreditreport.com
  • Review each credit report and identify every debt that was discharged by your bankruptcy case. Each of these debts should be noted as:
    • Zero Balance;
    • Included in Bankruptcy; and
    • Current

It may be necessary to file a dispute with the credit bureau to ensure that the discharged debts are reported accurately. The credit bureaus are obligated to report back to you within thirty days and send a new, updated copy of your credit report.

  • Apply for a secured credit card that will “graduate” to an unsecured card within 12 months. Note that not all secured cards graduate. Secure this card with a minimum deposit of $500. Charge on this card monthly, but no more than $100 on this card, ever. Pay this card off completely every month as soon as you get the bill.
  • Go to your nearest credit union and open a new bank account. You may want to consider direct deposit and automatic bill pay options.
  • Open a one year / $1,000 secured loan at the credit union. The bank will place your $1,000 into an interest bearing account. Make your payment every month on-time. 
More to come in the next post.
 
If you are considering filing for bankruptcy please call the experienced attorneys at Fears | Nachawati Law Firm to set up a free consultation. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com.

Bankruptcy offers debtors a fresh financial start. Unfortunately, many debtors avoid rebuilding their credit profiles after bankruptcy. These debtors believe that credit is dangerous and should be avoided.

Responsible use of credit is an important part of personal finance. A good credit score is necessary to purchase a house or car, or qualify for a bank loan or credit card. Aside from credit applications, credit scores are also used by employers during the hiring process, by car rentals, and by landlords. In other words, your credit score is important.

The first step to rebuilding your credit after bankruptcy is to examine your credit reports for errors. Many debtors believe that the bankruptcy court reports information to the credit bureaus. It does not. It is your responsibility to ensure that the information in your credit report is accurate.

There are three major players in the credit reporting world: Trans Union, Experian, and Equifax. The federal law mandates that each credit reporting agency must issue a free credit report to a person once a year upon request. To facilitate this directive, Trans Union, Experian, and Equifax have created a consumer website: https://www.annualcreditreport.com. At this site you can obtain an entirely free credit report without a credit card or on-going financial obligation. A copy of your credit bureau credit score is also available for a nominal fee.

Discharged debts should be listed on your report as “included in bankruptcy” with a balance of “zero.” There should be no collection activity listed on your credit report after the filing date of your bankruptcy case. For instance, the addition of a third party collector after the date you filed bankruptcy violates the bankruptcy automatic stay injunction and should be removed from your credit report. Likewise, overdue payments after the filing date are considered collection actions and should be removed.

Cleaning up your credit report is the first step to credit recovery after your bankruptcy case. In many cases, you can improve his credit score to an average score within a year or two after bankruptcy. However, any stumble along the way will only magnify the bankruptcy filing and keep your credit score low. For this reason it is important to monitor your credit report for errors or any changes at least twice a year.

The average American’s FICO credit score hit an all-time high this past April, nosing in at 692. FICO scores range from 300 to 850. Although judgment of credit scores is often in the eye of the beholder, anything between 700 and 749 is considered a good score, with the best scores ranging 750 and higher.

Debtors emerging from bankruptcy are often far below the national average credit score, so rebuilding and improving is a high priority for many. Fortunately, Experian and TransUnion, two of the country’s largest credit reporting bureaus, are now allowing landlords to report rental payment histories for tenants. According to an article in the Washington Post, “nearly 20 percent of renters saw an increase in their score of 10 points or more after just one month” once rental payments were included in the consumer’s credit profile. An extra 10 points on a credit score can mean the difference between a “poor” credit score and an “average” credit score, which translates to a better interest rate and a lower monthly loan payment.

There are two ways for a landlord to submit rental payments to a credit bureau (a tenant may not self-report). The first is when a landlord agrees to receive payment through a third party service, such as RentTrack. Tenants are able to pay rent through RentTrack via credit card or echeck directly from a bank account. There is a small processing fee for these services.

The second way to report rent payments is when a landlord provides a history of rental payments to the credit bureau, such as through TransUnion’s Resident Credit program.

Another option for consumers to include rental payments in a credit analysis is to use an alternative credit data company such as ECredable. These credit bureaus will verify a tenant’s rental payment history and include this data in a credit report and score, which can be used during a loan application. Under federal credit regulations, the mortgage company is required to consider this information during its loan approval process.

Your bankruptcy discharge will provide a fresh start, but it is up to you to rebuild your credit score. This takes time and attention. Your bankruptcy attorney can help you analyze your situation and make recommendations for improving your score after bankruptcy.

Many people consider “bankruptcy” a bad word, and while it is true that it will have an initial negative affect on your credit, for many people it can improve their financial situation over the long term. Many people who consider filing for bankruptcy have found themselves in a situation where they are not able to continue to pay all their debts and still cover the normal expenses. This can mean that many bills have gone unpaid or have been paid late, and the debtors credit score has started to plummet.

The goal of a consumer bankruptcy case is to allow debtors to receive a discharge, which is a permanent injunction that prevents creditors for collecting on their debt. This discharge eliminates much of the debtor’s debt and the only negative reporting the debtor will receive is the bankruptcy filing itself.

While a bankruptcy can be reported on a credit report for up to 10 years, with much of the debt discharged the debt to income ratio will improve, helping repair a debtor’s credit. In many cases a debtor’s overall credit may even be better then where it was just prior to filing in as short of a year of filing.

Many debtors mistakenly think that it will be many years before they can purchase a home or refinance an existing home. In reality, many debtors become eligible in as little as one year.

A debtor can rebuild their credit after a bankruptcy, by maintaining or taking out one or two small secured credit cards and routinely using them and paying them off. Also, payments to reaffirmed debt like a car and mortgage made on time will also help improve the debtors credit score.

The attorneys at Fears | Nachawati will review your credit situation and can help you decide if filing for bankruptcy is right for you. In addition to offering a free consultation they will also provide you with a credit report that provides your credit score. For more information call today 1.866.705.7584 or send an email to fears@fnlawfirm.com.
 

There are many situations when a person needs credit during an open bankruptcy case. Refinancing a home mortgage, redeeming an automobile, or simply applying for a new credit card are circumstances when a debtor needs to obtain credit during bankruptcy. Fortunately, the bankruptcy process allows the debtor to obtain the credit he or she needs while concurrently pursuing a bankruptcy discharge.

When a debtor applies for credit during an open bankruptcy case, the application not only affects the debtor and the creditor, but also concerns the trustee and the bankruptcy court judge. The creditor is concerned that the bankruptcy will interfere with the extension of credit, and the bankruptcy trustee and judge are concerned how the extension of credit will affect the bankruptcy case.

Chapter 7
For Chapter 7 cases, the reach of the bankruptcy court is limited to those assets you owned and debts you owed on the date you filed bankruptcy. The judge does not have jurisdiction on financial matters after the bankruptcy (called “post-petition”). While the bankruptcy court does have jurisdiction to approve or reject a reaffirmation agreement for a pre-petition debt, the court cannot forbid a post-petition extension of credit.

Chapter 13
For Chapter 13 cases, the court has continuing jurisdiction over your finances during the bankruptcy case. A Chapter 13 debtor is required to commit all of his or her disposable income to repay creditors. Any new credit must be approved by the bankruptcy judge since a new payment obligation may impact the Chapter 13 repayment plan.

Vehicle loan
There are no prohibitions to purchasing a vehicle after filing Chapter 7 bankruptcy. Nevertheless, most lenders require the debtor to receive a Chapter 7 discharge prior to extending financing for the vehicle. The main reason for this is the potential for the vehicle and the loan to become involved in litigation. For instance, prior to receiving a discharge, the debtor may convert the case to Chapter 13, or dismiss and re-file, and attempt to modify some terms of the vehicle note (for instance, the change the interest rate or stretch the payment terms).

Obtaining a vehicle during Chapter 13 bankruptcy requires the debtor to show that the vehicle purchase is “necessary to the completion of the Chapter 13 bankruptcy plan.” In plain language, you need the car to get to work to make the money to pay the creditors in the plan. When a vehicle purchase is reasonable and necessary, the courts are generally willing to approve the purchase on credit.

Home loan
Purchasing a home during an open Chapter 13 bankruptcy is difficult, but not impossible. While individual lenders will have different approval guidelines, the debtor must first qualify for an FHA or VA guaranteed home loan, which requires:
1. written approval from the trustee and bankruptcy court for the new credit;
2. a 12 month history of perfect payments on a confirmed bankruptcy plan; and
3. no further derogatory credit entries after the bankruptcy was filed.

Home loan modification under the federal Home Affordable Refinance Program (HAMP) is specifically authorized during Chapter 13 bankruptcy. This modification of a secured debt in bankruptcy requires the permission of the bankruptcy court and trustee, and will require the debtor to amend the Chapter 13 repayment plan. One recent trend is for local courts to require mortgage mediation sessions or other court supervised processes between the debtor and lender before a loan modification may be approved.

Purchasing a home after filing a Chapter 7 bankruptcy requires re-establishing your financial profile by showing a responsible use of credit. Generally, that means two to four years of rebuilding, but in some cases the wait may be shortened. If you are considering filing for bankruptcy, contact the experienced attorneys at Fears | Nachawati with any questions. Call us at 1.866.705.7584 to set up a free consultation.