How Can I Repair My Credit Score After Bankruptcy? KDB Law Firm Credit and Bankruptcy Part Four

If you have filed for bankruptcy, your credit score will be affected.  So how can you be proactive and work to repair your credit? Here are some important steps to take to improve your credit:

1. Pay on Time (By Paying in Advance): Pay your current bills and loans reaffirmed in bankruptcy in advance. In Part One {LINK} and Two {LINK} of the KDB Law Firm series on credit and bankruptcy we discussed the easiest ways to both help, and conversely, harm, your FICO score: your payment history. As you now know, your payment history is 35% of your FICO score.

2.  Follow Up with the Three Major Credit Reporting Agencies: Send each reporting agency a copy of your discharge notice as well as the schedule of creditors listed in your bankruptcy (schedules D, E, F). This is an important element to being repairing your credit after bankruptcy, as creditors are no longer able to report the discharged debt as owing on your credit file.

3.  Monitor your Credit: Check with each credit agency quarterly to confirm that the creditors are abiding by the discharge order and your discharged debt is being accurately reported. If a creditor fails to accurately report the debt as discharged or is continuing to attempt to collect on the debt, they are committing “discharge violation”. If you notice such discharge violation, which is common in most cases, contact your attorney immediately.

4. Wait Before Seeking New Credit: Hold off as long as possible before seeking credit. You will find lenders who will make loans to you immediately after a bankruptcy, and they will seek you out. It is not uncommon to receive credit card offers in the mail even before you receive your discharge! However, you can expect to pay rates 5-10% higher than most people. That may not seem like a lot, but based on an average 30-year financial lifetime, the additional interest you could pay could end up as much as $200,000 or more.

5. Rebuild Credit with a Secured Credit Card: Many people looking to repair their credit start with a local credit union or bank and open a secured credit card. A secured card (meaning you back it with equal funds in a savings account) will help rebuild your credit history. After 6 months to a year of using a secured card you will find that you can get a more traditional credit card without having to put up the cash first. However, even then be very careful and read the fine print!

In summary: after you file for bankruptcy and receive your discharge, be sure to monitor your score diligently, pay your bills slightly in advance, wait until your score improves before seeking new lines of credit, and improve your score by using a secured credit card.

For more bankruptcy information, visit http://www.KDBLawFirm.net/.

Be safe and be well! ~Kirk Berkhimer, Norfolk Bankruptcy Attorney

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Creditors; Secured, Unsecured or Priority!

When talking about debts you will often hear folks distinguish between secured and unsecured debt.  A secured creditor, or secured debt, is debt that upon the debtor's default the creditor has the right to proceed against collateral and apply those proceeds against payments owed.


Now, in plain English .... let's take a car loan for example.  When you purchase a car and take out a loan from a bank to pay for it, the bank will secure the loan with the car.  What this means is that if you fall behind on your payments, the Bank has the right to repossess your car.  Once the car is repossessed they will most likely try and sell the car and apply whatever money they get towards the outstanding loan balance.  The Bank may also add any additional fees that they had to pay in repossessing the car, such as attorney fees, etc.  More often than not the money they obtain from the sale of the car will not cover the entire balance left on the loan so they then will come after you for any balance still owed!  So, in the end you've lost the car and still owe money!

An unsecured loan or debt would be something like a credit card, personal loan or student loan.  With this type of loan the creditor does not have the right to repossess the item you purchased, but instead would likely use the courts to obtain any monies owed from you.  Again, let's take an example.  Let's say I purchased a couch on a credit card.  If and when I fall behind on my monthly payments to the credit card company they have the right to file a Warrant-in-Debt against me personally.  Here in Virginia the Warrant-in-Debt is how the creditor asks the courts to verify that you owe the money.  Assuming that you are found to owe the money, then ten (10) days after the court hearing they then can obtain a garnishment and take up to 25% of your paycheck to be applied toward the monies owed.

[A warrrant in debt is a summons to a defendant to appear in court because they are being sued for a debt. For example, in Virginia’s General District Court, the most common means to initiate a claim is the Summons for Warrant in Debt. However, the warrant in debt provides only limited information and therefore is a notice-based pleading. Along with the bill of particulars, the warrant in debt makes the pleading fact-based. A warrant in debt is the initial filing to start a garnnishment proceeding in some jurisdictions.]

Several examples of Secured and Unsecured debts are as follow:

       Secured:       Home mortgage, car loan and high value items such as stereos, computers, air conditioners, etc.

       Unsecured:   Credit cards, medical bills, student loans, etc.
                                  

There is a third type of debt that comes into play during Bankruptcy - Priority Debt.  This category identifies creditors that are given special attention.  The most common examples are income tax debts and past due alimony or child support payments.

If you are considering bankruptcy, then understanding what type of debt you have is important.  Depending on whether you file a Chapter 7 or Chapter 13 Petition will provide you various options in dealing with your debt.  For example, in a Chapter 13 Bankruptcy Petition if you are behind in your car payments you may bring your payments current and keep your car.

Next time we'll talk some about property - what types there are and how it is handled in a Bankruptcy.  If you'd like to come in for a FREE CONSULTATION, please, give me a call!

757-410-9263

Visit our web site at http://www.KDBLawFirm.net

and follow us on Twitter

@norfolk-lawyer.

Be safe, be blessed and be proactive!

How is My Credit Affected if I File Bankruptcy? KDB Law Firm Credit and Bankruptcy Part Three

In Part One and Two of our series on credit and bankruptcy we have discussed how to improve your credit score as well as the impact of missed payments on your credit score. If you are feeling financially overwhelmed and considering bankruptcy, the question of what happens to your credit in the event you file bankruptcy is a common one.

To be very clear, filing for bankruptcy will definitely affect your credit score. But how filing bankruptcy affects your credit score really depends on the state of your credit score prior to filing.  You may be surprised to find out that bankruptcy will not, in some cases, cause as big a hit in your credit score as you assume.

Let me explain: if your credit score is very poor due to delinquent accounts, maxed out credit cards, charged off accounts or collection accounts, filing for bankruptcy protection won’t affect your score that negatively (granted, your score is most likely already low). The reason for this is that once your debt is discharged, your creditors must update your credit report to reflect the account as being “discharged in bankruptcy” and must change the balance owing to “$0”, and all ongoing derogatory reporting must permanently cease. Granted, you aren't likely to see a big jump but if you've just been scraping by, your score isn't likely to fall much further.

On the other hand, if you have remained current on all your payments and your credit score is immaculate, your credit score will take a hit after filing chapter 7 bankruptcy. However, many clients find that discharging the debt they may otherwise never be able to pay off is worth the temporary hit to their FICO score.

Ultimately, if you are considering bankruptcy, how it may affect your credit score is important information to understand, but then again, your credit score alone shouldn't affect whether or not you decide to file bankruptcy.

That said- if your debt payments are crushing you, bankruptcy can give you a much-needed fresh start. While filing for bankruptcy protection will affect your credit score, it may not be as negative as you may think. And with credit repair strategies, you may be giving yourself a much-needed boost to long-term financial freedom down the road.

We will discuss repairing your credit after bankruptcy in Part Four (coming soon) of our series on credit and bankruptcy.

If you want more information on filing bankruptcy, visit http://www.KDBLawFirm.net/.

Be safe and be well! ~KirkBerkhimer, Norfolk Bankruptcy Attorney

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How is my Credit Score Affected if I Miss a Payment? KDB Law Firm Credit and Bankruptcy Part Two

Financial crises usually don’t happen over night. If you are like many individuals, the financial difficulties you may be facing have crept on you slowly. Credit cards that once had 0% interest may have increased after a year, or maybe the number of credit cards you have has increased over time, and now you find it is hard to keep up with the minimum payments.  An unexpected illness or injury can strain your finances. Maybe you have lost your job or have recently gotten divorced. All of these things can add up to financial crisis, where suddenly you don’t know how to pay all your bills on time.

If you are in this situation, you are certainly not alone.  You may be wondering what happens to your credit score when you are no longer able to pay your bills on time. As we discussed in Part One, paying your bills on time (by paying a bit in advance) is the best thing you can do to improve your credit score. Conversely, not paying your bills on time will negatively affect your score, as 35% of a FICO score is your payment history. The most important factor to a potential lender is whether or not you will pay your bills in full and on time. The more recent your good (or bad) payment history, the more important it will be for your credit score.

According to http://credit.about.com/od/usingcreditcards/a/latecardpayment.htm,

“Four Things Happen When You Pay Late:

1. Your creditor will charge a late fee. Your next billing statement will include a fee for the late/missed payments. Late fees typically range from $15 to $35. You'll receive a late fee each month your payment is late.

2. Your interest rate could increase. Creditors don't just penalize you with a fee, they'll often increase your interest rate to the default rate. This is the highest interest rate charged by a creditor usually as a penalty. The higher interest rate increases your finance charges making it more expensive to carry a balance.

3. The credit bureaus are notified when your payment is more than 30-days late. An entry is added to your credit report and will stay for seven years.

4. Your credit score will drop. Because payment history makes up 35% of your credit score, late payments can have a significant effect on your score affecting your ability to get new credit in the future. “

However, it is important for us to note that not all late payments are the same. While thirty- and sixty-day late payments affect your credit score more in the months they occur, they affect your credit score less as time passes. Ninety-day late payments, on the other hand, are more harmful to your credit score, and can be just as much a hit to your score as a collection.

At this point, many of you may be asking if bankruptcy will hurt or help your credit score. That is a very good question, one we will discuss in Part Three (coming soon!) of our series on credit and bankruptcy. Be sure to visit http://www.KDBLawFirm.net/ for more information.  

Be safe and take care! ~Kirk Berkhimer, Your Virginia Beach Bankruptcy Attorney.

Follow me on Twitter @Norfolk_Lawyer for more credit and bankruptcy information!