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You've filed for bankruptcy. Now it's
time to start rebuilding your credit.
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| Bankruptcy timeline |
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It will be hard to get credit at the start,
but it won't be impossible. The bankruptcy on your record
means you will have to pay more to borrow money, since
you'll probably be considered a subprime borrower. Subprime
borrowers pay higher interest rates and penalties for
defaults because they are considered a greater risk.
Kevin Chern, president of StartFreshToday
Inc., an information resource for bankruptcy lawyers,
says that when
a person files Chapter 7 liquidation bankruptcy,
the debtor immediately and dramatically reduces his
or her debt-to-income ratio.
"You also eliminate your ability
to qualify for Chapter 7 for another eight years. In
the eyes of a potential lender, you may actually appear
to be a better risk immediately."
He says that most Chapter 13 petitioners also will see
a reduction in debt-to-income ratio, but this won't
occur as quickly.
"After three to five years of living
on a strict budget, Chapter 13 debtors should be much
more equipped to manage their money efficiently. In
many cases, after 18 months of regular Chapter 13 payments,
a debtor can refinance out of a Chapter 13, especially
if the debtor has any equity in a home."
Bankruptcy experts advise consumers to
try not to borrow money too quickly. Instead, they should
make timely payments every month to help re-establish
their credit and get loans on more favorable terms.
Jessica Cecere, president of the Consumer
Credit Counseling Service of Palm Beach County/Treasure
Coast of Florida, suggests waiting until your credit
score has increased.
"650 or above is when you can shop
for a decent rate," she says.
Also, keep an emergency reserve.
"Bankrupt consumers are in a better
position to save because they've eliminated their debt
and they need to plan for their financial future again,"
says Cecere. "I always say save 10 percent of your
income, and the minimum is whatever you can manage.
Save pennies or change if you have no room in your budget
and you are paying off debt."
Debtors are advised to watch out for predatory-lending
scams and payday loans. Predatory lenders seek credit-impaired
consumers and charge them exorbitant fees for borrowing
money. Payday loans let consumers postdate a check for
the amount of the loan and the fees for taking out the
loan. Those fees are the killer. Credit counselors say
you could end up paying as much as 400 percent interest
with a payday loan.
Restoring your
credit rating
Bankrupt consumers should keep a close eye on their
credit reports and credit scores. The consumers should
get a copy of their reports from all of the major credit
reporting institutions: Equifax, Experian and TransUnion.
The reports should be examined for errors, missing and/or
inaccurate information regarding current residence,
employment and personal contact information. TrueCredit,
a provider of consumer credit management services, recommends
checking to make sure pre-bankruptcy debts are recorded
as "included in BK."
Some experts suggest avoiding credit repair
agencies.
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