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Rebuilding Your Credit After Chapter 7 and Chapter 13 Bankruptcy

The stock market crash of 2008 affected over 50% of Americans, and left at least 10% of Americans unemployed.

Don’t be ashamed if you are one of the many Americans still affected by the recession. In these difficult times, it is not surprising if you find yourself unable to meet outstanding debts. To this end, an attorney can help you with solutions related to bankruptcy, debt settlement, and credit repair.

If you are considering bankruptcy, you are certainly not alone, and you’re actually in good company. Some of the most successful Americans at one point in their past needed the help of bankruptcy relief.

The biggest obstacles bankruptcy candidates face is the road to credit repair. Here are step-by-step hints on how to rebuild your credit post-bankruptcy.

Rebuilding After Chapter 7 Bankruptcy
Chapter 7 bankruptcy is a process where the bankruptcy court eliminates your debts based on evidence that you have more debts than you could possibly pay for given your monthly income. The bankruptcy court will apply a means test, which is an analysis of monthly debts over monthly income. If you are “upside down” with excessive debts, you are eligible for Chapter 7 bankruptcy. The bankruptcy “discharge” is the order signed by the bankruptcy court indicating you’ve successfully completed a Chapter 7 proceeding, and your debts are dismissed.

Step 1: Have patience
Banks will likely refuse to offer credit to you within one year after your bankruptcy discharge. This doesn’t mean all hope is lost. In time, your credit will naturally improve. Your car loan applications or mortgage applications will eventually be accepted — it just may take a year. Rental applications may or may not be rejected within that year, but rest assured there are plenty of Pasadena area landlords who are willing to overlook a recent bankruptcy discharge.

Step 2: Monitor your credit report
Order your credit report periodically, and make sure your creditors have properly discharged the balances post-bankruptcy, and they are no longer on your credit report. A lawyer can help you review and monitor your credit report, and, more importantly, can take charge of inaccuracies on your credit report. For example, if a creditor has neglected to delete a debt from your credit report post-bankruptcy, that creditor is in violation of the Fair Credit Reporting Act. A good bankruptcy attorney can help you secure your rights in accordance with the Act, and should secure and review your credit report with you 30 days after discharge.

Step 3: If possible, keep consistent payments
During the bankruptcy proceedings, you will have the opportunity to “reaffirm” those debts you do not want to discharge. For example, you may want to continue making car payments to your car financing bank because you still want to keep your car. For all debts not discharged in bankruptcy, including the above example of the car loan, make consistent on-time payments. This may be the only obligation on your credit report. It is always in your best interest to make on-time payments for the loan, so that for every creditor, your report reads “paying on time and as agreed.” Consult with a bankruptcy attorney or debt settlement attorney, such as one of the attorneys at DCDM Law Group, if you are concerned you will not be able to keep up with payments for reaffirmed debts.

Step 4: Look forward to the future
Relax! Once approximately a year has passed since your bankruptcy discharge, banks and other creditors will start to extend credit to you again. Don’t make mistakes that can cause problems, such as overextending yourself with too many debts. Keep debts reasonable, and continue to monitor your credit report periodically.

Rebuilding After Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is one where the court orders the debtor to pay his debts by means of a monthly plan, which can last 3 to 5 years. For example, if the debtor’s current income is less than the state average, the court may recommend a 3-year plan in order to relieve the debtor sooner.

Chapter 13 bankruptcy, unfortunately, often has a much more detrimental effect on your credit report than Chapter 7 bankruptcy. This is because the issue between you and your creditors is deemed lingering; in short, your credit report continues to list an ongoing bankruptcy. Your creditors may continue to report your debt as “past due” until the 5-year period is over, and this “past due” language often keeps your credit score down. In December 2009, guidelines were issued by the Consumer Data Industry Association requiring creditors to report the balance left on your account post Chapter 13 bankruptcy, and to stop reporting the debt as “past due.” But some creditors don’t bother to follow the guidelines, and continue to report the debt as delinquent for the entire 5 years.

Given this fact, the No. 1 solution for rebuilding your credit after Chapter 13 is:
Carefully review and monitor your credit report at least 3 or 4 times a year. Look for the language being used by the creditors
Consult with an attorney if there are any discrepancies and if it seems the creditors are not following the guidelines. A bankruptcy or debt settlement attorney can fight for your protection pursuant to the guidelines, and pursuant to the Fair Credit Reporting Act.

Before bankruptcy, consider consulting with an attorney at DCDM Law Group to determine what is best for you. Despite the above, Chapter 13 can still be the best solution for a debtor.

In short, with proper consultation, bankruptcy can help bring you back to a position of financial stability.

Dheeraj K. Singhal
About the Author
I help people keep the things they want and get rid of the things they don't want. I have been a lawyer for over 12 years and there are few things I enjoy more then getting great results for the people that trust me with their legal problems.