Credit after Bankruptcy

Reestablishing credit after bankruptcy is one of the most anxious issues after an individual files for bankruptcy. It is also, why most people are apprehensive about filing for bankruptcy. An individual can be faced with so many concerns and questions after bankruptcy that it can leave him/her in the dark about future credit options. In realistic terms, it is a setback to an individual's credit report but it does not have to mean the end of good credit in the future. A person that files for bankruptcy can attain credit in a relatively short amount of time after a bankruptcy filing. The most common way is either through secured or even unsecured credit.

Once the bankruptcy is finalized, credit offers will start pouring in. Some offers will have outrageously high interest rates, high annual fees, or require a secured amount placed in a savings account. If the individual holds out, he/she will start to see offers that are more competitive. This is the chance to rebuild credit after bankruptcy. A person trying to reestablish credit should be responsible and carful with their second chance. That means not taking out too much credit or accepting every credit card offer that is received in the mail. Paying bills on time also goes a long way towards restoring credit after bankruptcy.

The best way to stay on top of credit is to create a budget and stick to it. The individual has to honestly consider what a maintainable amount of credit is and make every effort to stay within those established parameters.

Some of the most common questions that people face after filing for bankruptcy include:

• Is it possible to buy a home after bankruptcy? - Bankruptcy debtors can qualify for mortgage or loan as soon as 18 months after a discharge of debt. Income and the amount of down payment will have more to do with the ability to get a mortgage loan than a bankruptcy filing.
• How long will a bankruptcy stay on a credit report? - According to the Bankruptcy Code and the Fair Credit Reporting Act, a consumer credit report may include information on Chapter 7 and 13 bankruptcies for 10 years from the start of the case. One major consumer credit reporting agency removes information on Chapter 13 after 7 years though it legally does not have do so. Other credit information is usually reported for 7 years.
• Is it possible to get a government guaranteed student loan after bankruptcy? - Government guaranteed educational loans are not based upon credit history or income. They are instead extended if you meet the statutory and administrative requirements.
• Is it possible to get a guaranteed loan from FHA or VA after bankruptcy? –

1. The FHA will insure mortgages to individuals who have filed for Chapter 7 liquidation bankruptcy two years after the discharge as long as the borrower has re-established good credit.
2. The VA includes provisions that state that if the bankruptcy was discharged more than two years prior to the loan application, the bankruptcy may be disregarded. VA rules allow granting of a loan guarantee to a person in Chapter 13 when the plan payments are complete, or after 12 months of payments if the Trustee or the Bankruptcy Judge approves the new credit.

Important tips to help an individual reestablish credit:

• Correct any errors on the credit report.
• Write letters to the credit reporting agencies explaining the bankruptcy filing.
• Talk to any bankers or credit holders to let them know of the effort to reestablish credit.
• Open a savings account and contribute to it regularly.
• Try to pay any outstanding debt as fast as possible.
• Pay all household and other bills on time.
• Pay any reaffirmed, pre-bankruptcy debts on time.
• Take out a small loan or a secured credit card with small limit.
• Stay away from high interest credit schemes such as payday loans.
• Do not apply for multiple credit cards or open credit.
• Try not to increase the debt to income ratio.

If you or a loved one has filed for bankruptcy or is considering bankruptcy, you should talk to a qualified bankruptcy attorney to make sure you understand your rights and obligation under the bankruptcy code. A bankruptcy lawyer can also answer any questions you may have about your options for reestablishing credit after bankruptcy.