back from the black hole (of bankruptcy)
When it comes to bankruptcy and credit, filers are
down but not out.
Filing for bankruptcy used to be "really taboo,"
says attorney Michael J. O'Connor, of Albany, N.Y. "You were
in credit purgatory for a lengthy period of time and couldn't get
any credit at all."
"Financial products today are available to just
about everybody. It doesn't take 10 years to re-establish the ability
to get financing," explains Chris Viale, president and chief
operating officer of Cambridge
Credit Counseling Corp.
Although it's ironic, those who undergo Chapter 7
bankruptcy, and thereby shed the responsibility of debt payback,
are more likely to be the first that creditors will court. "Chapter
7 clients are getting credit cards, car loans, mortgages a year
after [discharge from] bankruptcy," O'Connor has noticed.
Experts say it typically takes two to three years
after discharge from a Chapter 13 plan to get credit extended. "It's
very difficult to get credit while in the plan. You have to go through
the trustee's office for permission to [accept] credit," O'Connor
says. And that's "assuming you can find a lender who will give
Yet it's not impossible. Trustees may grant
permission to borrow money for a car or an educational loan, or
to refinance your house to pay off debts, says Henry Hildebrand,
an attorney and Chapter 13 trustee.
Generally, your first steps toward credit will "get
you back into the B market, not the A market," Viale notes.
Expect high interest rates, short repayment terms, and to do some
The sleuthing skills will also come in handy in weeding
out "too good to be true" offers. "When someone files
for a Chapter 13 bankruptcy the scam artists come out of the woodwork.
They're drawn to people who have filed for bankruptcy like moths
to a flame," says credit education specialist Nicole Lowe at
TrueCredit.com, a division of TransUnion.
One common scam: In return for an upfront fee, conmen
will offer you a credit card or set you up with a home loan. "Make
sure you're thinking not hopefully, but rationally," Lowe advises.
"If they're seeking you out, be on your guard." Phone
offers available only on-the-spot are a red flag.
Seven years after a Chapter 13 discharge, evidence
of it will fall off your credit report. But you can get moving much
sooner by appearing as less of a risk to lenders:
- Keep tabs on your credit
report. Despite the Fair Credit Reporting Act, which states
that only accurate debts can be listed on a credit report, creditors
don't always follow through to ensure that debts included in a
bankruptcy are labeled "included in BK." The wrong note
makes it look like you have not only filed bankruptcy but also
continued racking up debt in the process. Make sure you understand
everything on the report, and if you discover a mistake, contact
the credit bureaus (TransUnion, Experian and Equifax) to remedy
- Open a secured credit card. This
type of VISA or MasterCard is pre-paid, meaning you must deposit
an amount in the issuer's bank first. In return you'll receive
a credit line for up to 100 percent of the account balance. Again,
it may not be easy to find a bank that will work with you. "Shop
around at your local bank and credit unions," Lowe suggests.
- "Be selective about
opening any account, and any account you open or use, make
sure that it's paid as agreed and paid on time," says Cate
Williams, vice president of financial literacy at Money Management
International. Viale suggests acting quickly but cautiously, getting
two or three different quotes on, say, a car loan.
- Learn the tricks of the
FICO-score trade. Stephen Snyder, author of "Credit
after Bankruptcy," learned the hard way that getting a home
equity line of credit hurts your score much more than a home equity
loan. Another tip: Be aware that many credit unions don't report
credit history to all three credit bureaus. They keep rates low
for members by not reporting, Snyder explains.
- Don't sink all your money
into your world of old. A Chapter 13 discharge means extra
money in your pocket. Experts advise a responsible return to borrowing
to build a new, healthy chapter in your credit history.
As a trustee, Hildebrand suggests an afterlife of savings
and wise investments.