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Common Misconceptions about Credit After Bankruptcy
Rebuilding credit after bankruptcy is one of the biggest fears that my clients have. There is so much misinformation about bankruptcy and credit that most of these fears are not realistic.  Some people believe that filing bankruptcy will mean that they will never be able to get credit again.  Others are convinced that they will not be able to get credit for at least 7 years–how long they think the bankruptcy will be on their credit report. Many don’t care. They know their credit has already “hit bottom” and the bankruptcy won’t make any difference.
Facts About Credit After Bankruptcy
How long a bankruptcy stays on the credit report depends on the type of bankruptcy filed. The law allows the credit bureaus to report the bankruptcy for 10 years from the date the bankruptcy is filed. The credit bureaus don’t have to report the bankruptcy that long–they just cannot report it any longer. Their current policy is to report a Chapter 7 bankruptcy for the full ten years.  Chapter 13 is different. The credit bureaus report a Chapter 13 bankruptcy on their reports for 7 years. However, one of the major credit bureaus will report a dismissed Chapter 13 for ten years.
How Long Will it Take to Get Credit After Bankruptcy?
There is really no fair answer to this question. Some people are able to reestablish credit immediately after their bankruptcy. Others struggle for several years. The opinion of most of the credit professionals I have spoken to about this say the average is about two years for a person to reestablish their credit to the point that they can get credit with fair terms. A mortgage lender suggested that the Federal Housing Administration (FHA) is a good guideline.  Their current rules require that a Chapter 7 bankruptcy discharge be at least two years old in order to qualify for a home mortgage. The rules for a Chapter 13 allow you to qualify for an FHA mortgage one year after the case is filed. The FHA rules are summarized on their website here: FHA rules for mortgages and bankruptcy.
How to Rebuild Credit After Bankruptcy
You will notice that the FHA rules require that you have reestablished some credit prior to meeting the rules for their program. This does not require that your credit be back to normal. It just means that you have one or two new accounts that are showing positively after your bankruptcy and that you not have new credit problems after your bankruptcy. There are four steps to making this happen.
Step One: Get your credit reports
After you receive your bankruptcy discharge you need to make sure that the discharged debt is not holding you back. Do this by ordering a copy of your credit report from all three of the major credit bureaus. All of the information you need about how to contact them is available from the FDIC’s website here: Credit Bureau Information. We help all of our clients complete this first step.
Step Two:  Challenge any discharged account that shows a balance
The bankruptcy is not going to erase your discharged accounts. They can still be reported. What they cannot do is report that you still owe any money. When they are reported with a zero balance and a notation that the account was included in bankruptcy it is being reported correctly. Too often people will find that an account is still being reported with a delinquent balance owed. These need to be challenged by filing a dispute with the credit bureau. If the creditor will not correct the inaccurate information it would be a good idea to see an attorney. This step is critical and explains why we ask our clients to send us copies of their credit reports.
Step Three: Apply for a Secured Credit Card Account
These accounts are easy to get after bankruptcy. A secured account requires that you deposit into a savings account money to act as collateral for the credit card. Do some research on the bank that you are considering opening an account with. Also, make sure that the bank reports their accounts to at least one of the major credit bureaus. Not all do. Also, beware of scams when looking for an account.
Step Four: Use the Account to reestablish your credit after bankruptcy
Just having the account is not enough. I recommend that you use the account every month and pay it off every month. This positive activity will do far more for your credit score than having several inactive accounts.
Once you follow these four steps you will see a significant increase in your credit score and discover that getting credit after bankruptcy is not nearly as difficult as you feared. Repeat step one and two every six months for a couple of years to make sure that nothing negative is being reported illegally. Before you know it you won’t have any trouble being approved for credit that you can reasonably afford.
Mesa Bankruptcy Lawyer: Free Appointment
Please let us know what you think of this information or have other ideas that we can pass along. We have spent a lot of time researching and investigating how bankruptcy affects credit because we want to be able to help our clients reestablish their credit and put the bankruptcy behind them. When you are seriously considering bankruptcy call us to schedule a free appointment. The number is 480-820-0800. We will continue to help even after the bankruptcy is over.
 
 
Original article: Credit After Bankruptcy: Four Important Steps to Rebuilding Your Credit©2013 Arizona Bankruptcy Lawyer. All Rights Reserved.The post Credit After Bankruptcy: Four Important Steps to Rebuilding Your Credit appeared first on Arizona Bankruptcy Lawyer.

Many small business owners will have a family member or close friend co-sign for them on a business loan or the purchase of a major asset, such as a house or car.  If you fall behind on the payments and decide that bankruptcy is the right option for you, be aware that filing bankruptcy will only wipe out YOUR personal liability on the debt.  If your parents or friends provided their guarantee to a creditor that they would pay the debt if you could not, they will likely receive a nasty demand letter from the creditor whose debt you discharged.  If the creditor believes that your co-signor has significant assets to recover, it may decide to sue that person, possibly forcing them into bankruptcy.
This is why I always advise people to not co-sign with friends or family members on loans.  Financial problems can cause huge rifts in otherwise harmonious family and personal relationships.  If I decide to lend a family member money, I do so with the intention that I will never see it again and treat it as a gift.
Be especially weary of who you have to co-sign for a Small Business Administration loan, as that person’s credit and financial life will be greatly affected the the success or failure of your business.

When considering bankruptcy as a solution for your unmanageable expenses, it is important that you realize bankruptcy, Chapter 13  is supposed to alleviate the financial strain you are currently in.  You should leave your attorney’s office in a better position than when you walked in.  When considering to file Chapter 13,  it is essential that you take a step back and evaluate your financial position. Chapter 13 will not be a benefit to you and your family if you are living beyond your income. Sometimes this means having to give up a house, vehicle, and/or other assets that may be the cause of your financial strain.  Your Chapter 13 payment should be feasible and something you can afford to make comfortably without having to take major hits in your already tight budget. Chapter 13 is intended to be a solution for your financial problems and not create an additional one for you. When contemplating Chapter 13, be sure that you sit back, assess your finances and the decisions you made that got you to this place. As your attorneys we can help, however, the real change must come from you. Everyone deserves a second chance and a fresh start. Bankruptcy, Chapter 13 can be that for you if you are willing to make the necessary changes.

As a person who regularly checks his credit report, I was surprised a few years ago when one of the credit bureaus reported that I had filed for bankruptcy.  This was not true; I was only eighteen or nineteen at the time, and had no reason to file.  It was actually a family member of mine who had filed for bankruptcy.  Adding to the absurdity of the situation was that the bankruptcy had been filed in 1995, when I was only 7 years old.  Despite the inherent nonsense, I still had trouble convincing the representative of the credit bureau over the phone that the bankruptcy did not actually belong to me.  I eventually got the situation resolved, but it took a lot of needless time.
Of course, that was not the only account listed on my credit report that did not actually belong to me.  There were multiple other accounts past due which were incorrectly attributed to me on my credit report.  I believe I have had incorrect listings on my credit report every time that I have checked it, including earlier this year.  Based on the way that credit reports are currently structured, it seems to me that the system runs contrary to its stated goals.
First, I should mention that the only website that will give you an actual free credit report every year is AnnualCreditReport.com.  It will give you your reports for Equifax, Experian, and Transunion.  I find it troubling how few people are aware of this; television, of course, is littered with commercials for websites with misleading names about the prices of their credit reports, which lead to monthly account charges. AnnualCreditReport.com is mandated to exist as a consequence of 2003’s Fair Credit Reporting Act, and will provide anyone with a truly free credit report once every year.
The goal of credit reports, as I understand it to be, is to provide information on the worthiness of a customer to receive credit.  Some aspects of the credit report adequately serve this function: if I were considering lending money to a consumer, I would certainly like to know whether that consumer has recently defaulted on loans, has filed for bankruptcy, or has substantially more debt than income.
My main problem, though, is that a consumer’s credit score lowers when the consumer has his or her credit checked, whether that is by the consumer or by a potential lender.  This, to me, should be changed.  Whereas things like bankruptcy and past due accounts generally show a degree of financial mismanagement, frequent checking of one’s credit is indicative of diligent awareness of one’s creditworthiness.  Even beyond this, people in my situation, with incorrect information constantly showing up on my credit report, have somewhat of a “damned if you do, damned if you don’t” scenario.  If I fail to check my credit report frequently, then incorrect information shows up and I don’t have the chance to correct it until I have already been denied credit due to the faulty information.  If I do check my credit report frequently, my credit score will consequently decrease, and I will similarly have a difficult time obtaining credit.  I am aware that there are services available which alert consumers about changes to their credit reports, but I have trouble believing that every consumer should have to pay a monthly fee to utilize such a service, considering the mandatory nature of having reports with the three major credit bureaus for any consumer who wishes to obtain credit.
If that aspect of the credit system does not change (or even if it does), then new procedures need to be put in place to ensure that information on credit reports is actually correct.  For example, for any information that appears on my credit report, if either the creditors or the bureaus had bothered to verify that my social security number matched that of the delinquent debtor, they would have discovered quickly that the accounts did not actually belong to me.  Instead, however, many of these creditors see a similar name and/ or the same address, they incorrectly report the debt to the credit bureau without any further verification.  A mandatory social security number verification, by either the credit bureau or the creditor, would easily resolve this situation.
When incorrect information does appear on a consumer’s credit report, the consumer’s remedy is to submit a dispute to the credit bureau.  The credit bureau will then contact the creditor and ask them to verify that the information is correct.  If the creditor fails to report back to the bureau with affirmation that the information is indeed correct, then the credit bureau is legally required to remove the information.  This system is not perfect either, however.  With at least one account that has incorrectly been reported as mine on my credit report, I disputed the account, and the company STILL reported incorrectly that I was past due on an account with them.  When the credit bureau contacted the company, the company was lazy enough to report back to the credit bureau that I actually did owe them money, clearly without adequate verification.  I eventually got in contact with this company and asked why they still reported that I owe them money, even after the dispute gave them reason to believe that the information was faulty.  Their response was that they get hundreds of those every day, and sometimes these things just slip through.  I dislike a mandatory credit system that allows for corporate laziness to harm consumers in such a way.
My solution is for Congress to act on this and either put more stringent requirements to verify credit information or to remove the disincentive to check one’s credit report frequently.  The system, as is currently is, produces bizarre results and incentives that often do not reflect creditworthiness, but instead harm consumers for forces beyond their control.  Unfortunately, this is not a talking point that receives much attention in the media, so I am not confident that such changes are imminent.
Please let me know what you think.  Unlike my previous blog entries, this one is largely based on opinion, and I am curious to see whether other have similar gripes.  Also, you may have noticed that I said I said in my last entry that I would write about the discharge of medical malpractice debts.  I felt more motivated to write about this at the moment.  I’ll probably write about that at some point.  I plan on writing every other week from this point, and I am not sure at the moment what my next entry will be. Please come back here in a couple weeks and find out. Thanks for reading.
J.P. Morgan