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Bankruptcy

Feb 05
1
truth about bankruptcy

The Truth About Bankruptcy — and What It Really Does to Your Credit

By | Bankruptcy

Filing for personal bankruptcy is often the culmination of years of financial struggle. Most people have already turned to a number of possible solutions to settle their debt problems without success. Bankruptcy is typically a last-resort decision, in which you legally petition a court to remove your existing debts. When the filing takes effect, you will then gain some breathing room — and the chance to rebuild your financial situation. However, because of the gravity of this step, realize that your credit will take a serious hit. It’s important to understand the truth about bankruptcy and its long-term effect on your credit. Here’s what you need to know before you take the plunge.

Immediate Effects to Score

When you file for bankruptcy, you can expect to see your credit score take a tumble — but the exact amount may depend on the score you currently hold. Generally, the lower your score is at the time of filing, the fewer points you stand to lose. Most of the time, a bankruptcy filer has already racked up a few adverse events on their credit report — such as a past-due item or collection activity — which means that a bankruptcy may not leave as substantial an impact. However, if your credit record is spotless and you boast a fairly solid score — such as between 600 and 700 — you may lose more than 200 points. Also, the total amount of debts discharged will play a part in the overall credit score slide. Someone who carried a significant amount of debt will likely experience a more substantial drop than someone who only had a couple of accounts involved.

Chapter 7 vs Chapter 13

The type of bankruptcy that you file won’t matter to your credit score. That means that the effect on your score will be the same, whether you file for Chapter 13 bankruptcy, in which you agree to repay a portion of your debts over an extended time period, or Chapter 7 bankruptcy, which simply obliterates the debts without any obligation of repayment. However, keep in mind that when potential lenders review your credit report in the future, they might view a Chapter 13 filing a bit more favorably than its counterpart.

Length of Time on Report

Bankruptcy will appear as a public record on your credit report. As long as it remains there, it will continue to affect your credit negatively. If you filed for Chapter 7 bankruptcy, the bankruptcy will be included on your report for 10 years after the date of filing. Chapter 13 filers will see all mentions of bankruptcy disappear after seven years. Any accounts that were included in the bankruptcy will be reported alongside a “discharged” or “included in bankruptcy” notation. The upside? Those accounts will no longer be reported as past due or unpaid.

Diminishing Effects

Each year that passes will lessen the negative impact of bankruptcy on your credit. Once the seven or 10 years expires, you can finally breathe a sigh of relief — the bankruptcy will automatically disappear from your report. Remember that you do not need to wait for the bankruptcy filing to fall off your credit report before you can begin to rebuild your credit. To speed up the credit-building process, make sure to practice sound financial management.

Repairing Credit After Bankruptcy

Rebuilding your credit after bankruptcy can seem like an overwhelming process. But the truth about bankruptcy is that plenty of people have gone on to achieve impressive credit scores, even after nearing the brink of financial ruin. The safest way to do this is through a secured credit card, which will require you to pay an upfront security deposit that will serve as your “credit limit.” Once you build a history of monthly on-time payments, you can begin to reverse some of the negative effects of bankruptcy. Loans are also available to post-bankruptcy filers and typically require either a deposit or collateral. Keep your total debt load low — ideally try not to let the amount of debt you’re using exceed 30 percent of your total available credit.

This Is Where We Shine

The truth about bankruptcy is that you will recover. Whether you’re considering filing, or just emerging from the process, contact us for a free consultation. Our team of credit gurus at Ovation Credit have helped hundreds of thousands of consumers repair their credit. We could be just the helping hand you need today.

Sep 05
0
How Long Bankruptcy Affects Your Credit

How Long Bankruptcy Really Affects Your Credit

By | Bankruptcy

Going through a bankruptcy can be a hugely stressful situation. But while it certainly impacts your credit for some time, it’s comforting to know that this financial event won’t stick with you forever. Find out exactly what to expect in terms of your credit report and score if you’re planning on filing Chapter 7 or Chapter 13 bankruptcy. And if you already have filed for bankruptcy, we’ll share our top tips for starting over on the right foot so you can repair your credit as quickly as possible.

What Happens to Your Credit Right After Bankruptcy?

Once your bankruptcy hits your credit report, your score can drop as much as 200 points. The higher your existing credit score is, the more your score will drop. If you have a lower score, you might not see your score change quite as dramatically — though it will still be significant.

The severity of your bankruptcy also impacts your credit score. The more debt you have discharged, for instance, the more your score could drop. You may want to sign up for a credit monitoring service so you can track exactly where your credit score is headed throughout the recovery process.

How long a bankruptcy stays on your credit report depends on what type you filed. A Chapter 7 stays on your report for 10 years, while a Chapter 13 stays on for just 7 years. Additionally, any financial history leading up to your bankruptcy, such as late payments or loan defaults, only stay on your credit report for 7 years from the time they were added to the report.

Luckily, even though these effects can be devastating, they won’t last forever; in fact, they won’t even last the entire length of time you see that negative bankruptcy entry on your credit report.

How Long Does It Take to Improve Your Credit?

Even if you just went through a bankruptcy, you can start improving your credit score immediately. There are a few different ways you can repair your credit over time, even with such a serious entry. First, don’t rack up any new debt. While it can help your credit score to open new lines of credit, don’t max out any cards or take on high-interest loans.

Instead, keep your credit utilization under 30% to maximize your credit score. Another huge factor in the credit repair process is making bill payments on time each month. Make sure you do this on a regular basis in order to keep your accounts in good standing and start to improve your credit.

How Do You Get New Credit with Such a Bad Credit Score?

There are actually several options for accessing new credit products regardless of your credit score. For example, you could apply for either a secured credit card or credit builder loan soon after your bankruptcy. Since both of those require a security deposit, the credit requirements for approval are minimal. As you continue to fix your credit with on-time payments, you can apply for loans and credit cards with better rates and terms.

You could potentially get into the 700+ range somewhere between four and five years after your bankruptcy, if you make consistently positive financial decisions. If you’re hoping to buy a house in the future, some home loan programs will qualify you after just two years from your bankruptcy. In some cases, you could even qualify after one year.

Can You Dispute a Bankruptcy on Your Credit Report?

Getting a bankruptcy removed from your credit report early is a difficult process. You’ll have the best luck if you can show evidence of a credit error. Find out by requesting a copy of your credit report and scanning it thoroughly for any inaccurate listings, particularly concerning your bankruptcy. If you find something wrong, you can submit a credit dispute directly with the credit bureau. They’ll have 30 days to respond to your request. Depending on your situation, they may simply update the entry or delete it entirely.

Petitioning the credit bureaus can be a long and cumbersome process. If you’d like professional help, consider working with a reputable credit repair firm like Ovation Credit. We provide a Free Credit Repair Consultation and Credit Report Summary with absolutely no obligation. During the call, our team can give you a better idea of the best way to improve your credit, whether it’s related to a bankruptcy or other negative items on your credit report.

Jun 29
0

Bankruptcy Lingo: 12 Terms You Need to Know

By | Bankruptcy

Going through bankruptcy is tough. It takes the advice of a good lawyer or a finance expert to make sure that you do everything right and well. On top of it all, the intricate nature of the process and the emotional impact of the proceedings can make the entire bankruptcy feel more complicated than it is. Do yourself a favor and make sure that you learn the bankruptcy lingo and terms before you begin the filing procedures.

Bankruptcy Lingo

Learning Bankruptcy Lingo:

1. Chapter 7 Bankruptcy

Chapter 7 is what most people think of when they think of bankruptcy. It involves liquidating your assets and discharging unsecured debt. In some cases, you will be forced to sell assets to satisfy your creditors if you do not pass a means test, but you will usually be able to keep most, if not all, of what you own. It takes around four months to complete the process.

2. Chapter 13 Bankruptcy

You also have the option to reorganize your debts with a Chapter 13 bankruptcy as long as you have a regular income. This type of bankruptcy forces your creditors to allow you to repay what you owe on a payment plan. Sometimes amounts are reduced, sometimes not. Sometimes you get big savings on interest, sometimes it’s just about giving you extra time to pay everything off. It’s called reorganization. The process may take a few years, but you’ll be able to keep everything.

3. Chapter 11 Bankruptcy

If you have a business and your debts stem from running that enterprise, you could qualify for a Chapter 11 bankruptcy. This is like a Chapter 13 bankruptcy for your business. Through the help of the bankruptcy courts, you will reorganize your debt, keep your business open if you like and pay back your company debts over time.

4. Automatic Stay

In either case, when you file a bankruptcy petition, all collection activity is required to stop. Foreclosures, collection phone calls, penalty rates — all this stops as soon as you file for bankruptcy and let your creditors know about your situation.

5. Creditor

Anyone to whom you owe money or claims to be owed money by you is referred to as a creditor. This could be a person or a company. Bankruptcy filings are public, so sometimes a creditor will contact the bankruptcy court if they have been left off of your petition. Try not to let this happen. It is important that you list all your creditors in your bankruptcy petition or else it could derail the proceedings.

6. Claim

The formal acknowledgment that you owe a creditor is called a claim. These claims are an important part of your bankruptcy filing.

7. Lien

When a creditor has a legal right to take your property or sell it to satisfy your debt, this is called a lien.

8. Discharge

After you complete your bankruptcy proceedings and you are successful, eligible debts will be discharged. This means that your creditors cannot pursue further action against you. Your debt with them is over and satisfied. It is important to note that while many debts can be discharged, some cannot. If you owe alimony, are behind on your child support or have back taxes, you cannot discharge that debt, and there are many other similar types of debt. Your situation also matters. Sometimes, the court decides whether it is appropriate for you to discharge a debt.

9. Non-dischargeable Debt

Debts that cannot be discharged are referred to as non-dischargeable.

10. Dismissal

If you are unsuccessful in your bankruptcy filing, it may be dismissed. This means that the bankruptcy court has decided to throw out your petition. Your creditors will be free to pursue collection or litigation (aka sue you) in order to get a court to force you to repay your debts.

11. Exemptions

When you file for any type of bankruptcy, you will need to list out all your assets and debts. The court then determines if an asset should be liquidated to help pay for a specific debt. However, there are some assets that exempt. These are called exemptions or exempt property. For instance, there is a homestead exemption that could allow you to keep your home. Also, bankruptcy petitioners are often permitted to keep their “tools of trade” — such as your computer if you are a graphic designer or your tools if you are a mechanic.

12. Means Test

The Means Test is bankruptcy lingo used in Chapter 7 bankruptcies to determine whether the person filing for bankruptcy is abusing the system. “Abuse is presumed if the debtor’s aggregate current monthly income (see definition above) over 5 years, net of certain statutorily allowed expenses is more than (i) $12,850, or (ii) 25% of the debtor’s non-priority unsecured debt, as long as that amount is at least $7,700,” explains U.S. Courts. “The debtor may rebut a presumption of abuse only by a showing of special circumstances that justify additional expenses or adjustments of current monthly income.”

Understanding the Bankruptcy Lingo saves you time!

Bankruptcy can be a stressful time. Don’t make it harder than it needs to be by not understanding the bankruptcy lingo being used. Spending time differentiating between key concepts will make understanding your bankruptcy options easier and take some of the strain out of the process.

Sources:

Chapter 13 Info, “Dismissal vs. Discharge.” [Accessed: http://www.chapter13info.com/dismissalvsdischarge.html]

Smith, Carrie, “Seven Things to Know When Filing for Bankruptcy,” The Simple Dollar, December 1, 2016. [Accessed: http://www.thesimpledollar.com/what-to-expect-when-filing-for-bankruptcy/]

US Courts, “Bankruptcy Basics Glossary.” [Accessed: http://www.uscourts.gov/educational-resources/educational-activities/bankruptcy-basics-glossary]

May 05
0

Bankruptcy: Rebooting Your Credit Life

By | Bankruptcy

For many people, bankruptcy is a scary concept, something to be avoided at all costs. However, the truth is that legal bankruptcy can relieve you of major financial burdens and allow you to begin planning a debt-free future.

Bankruptcy-Reboot-Your-Credit

Two Types of Bankruptcy

In essence, declaring bankruptcy is a way of telling the United States court system that you can’t currently pay your debts. There are two main kinds of bankruptcy for individuals (as opposed to businesses). A Chapter 13 bankruptcy lets you negotiate with your lenders and come up with new payment plans that you can manage. In most cases, people must make all of their payments within five years.

If you don’t have much in the way of disposable income, a Chapter 7 bankruptcy may be the option for you. Unfortunately, it will require you to sell or cash in some of your assets in order to pay certain bills. On the bright side, this measure will eliminate some of your debts ― medical bills, for instance ― so you can forget about them entirely.

The Procedure

If you’ve decided to file for bankruptcy, your first task is to find a lawyer you can afford. That attorney will explain all of the details of the process. She’ll also supply you with the forms you’ll need and help you to complete them correctly.

Later, you’ll have to appear in court at a 341 hearing, which some or all of your creditors may attend. There, you’ll discuss your debts and assets. If you’re going through a Chapter 7 bankruptcy, your debtors’ official representative, who’s known as the bankruptcy trustee, will help figure out which of your possessions you’ll be required to liquidate.

As part of your bankruptcy responsibilities, you’ll need to take a class that will review methods for handling your personal finances. In addition, you should know that, under the law, your boss isn’t allowed to fire you merely because you’ve declared bankruptcy.

Next Steps

Once your bankruptcy is behind you, a good first step is to carefully prepare a budget for yourself. Make a thorough list of your monthly expenses and compare it to your monthly income. Of course, you should be spending significantly less than you’re making so you can grow your savings and build up an emergency fund. If you’re spending too much each month, do whatever you must to reduce your expenditures, increase your income or both.

For example, you might look for a job that pays more, or even get a second job. You could move to a cheaper apartment, or you could sell your home and buy one that’s smaller and more affordable. Why not give up golf, forego cable TV or start using less smartphone data? Whatever you can think of to get on solid financial footing, take that action at once.

If you obtain a secured credit card with low fees, using it in moderation should help you to raise your credit score.

Especially important, make sure that you pay every bill on time. It’s worthwhile to set up as many automatic electronic payments as you can. That way, you’ll be less likely to forget to pay a bill. Also, keep checking the bank accounts from which your automatic payments come. Obviously, you don’t want to overdraw from one of them.

When it comes to the bills you can’t automate, try using an app or an old-fashioned calendar to remind yourself of due dates. Moreover, make each of those payments several days before they’re due. You don’t want unforeseen circumstances to somehow prevent you from paying on time.

The services of an excellent credit repair company can likewise enhance your credit report. Such a firm will scrutinize your credit history, find mistakes that are hurting your score and contact the proper credit reporting agencies to get them erased.

As time goes by, keep reviewing copies of your credit reports. If you ever spot a sudden drop in your score, you could get in touch with a credit repair company to see if an error was involved.

A Tricky Decision

It probably goes without saying that bankruptcies aren’t entirely positive. This legal process will damage your credit score, and a bankruptcy notice will stay on your credit record for a full 10 years. And, even though there’s no reason to, you may experience some lingering feelings of failure or shame after you file for bankruptcy.

However, these days, lenders tend to be more lenient with those who’ve declared bankruptcy than they once were, especially people who’ve only gone bankrupt one time. Thus, you shouldn’t expect that you’ll have to pay enormous interest rates for all of your future loans. In some cases, though, you might be required to explain to potential creditors why you chose to declare bankruptcy.

In the final analysis, bankruptcy is certainly a serious and consequential action. At the same time, it can be a uniquely valuable tool for those who find themselves in difficult financial situations. Many people are able to turn their lives around as soon as they take this step.

Sources:

https://www.aol.com/article/2011/06/03/life-after-bankruptcy-5-steps-to-rebuilding-your-credit-financ/19955927/

http://blog.credit.com/2014/12/5-things-to-do-after-bankruptcy-103308/

http://www.businessnewsdaily.com/3973-bankruptcy.html

http://www.huffingtonpost.com/curtis-arnold/how-to-rebuild-your-credi_b_5790860.html

http://www.nytimes.com/2012/09/16/realestate/mortgages-life-after-bankruptcy.html

https://www.thebalance.com/how-to-repair-credit-after-bankruptcy-960380

 

Jul 25
0

How Long Does It Take to Fix My Credit?

By | Bankruptcy, Credit Repair, Credit Reports, Credit Scores, Your Credit

time to fix credit

Your credit score shows both your short- and long-term credit history, so building a perfect credit report can take years. However, there are many steps along the way, and you can see some improvements to your credit score in a matter of weeks. Here’s how long changes should take to be reflected in your credit score.

Paying Down Credit Balances

Paying down a credit card or other balance is one of the fastest improvements you can make to your credit. Your credit utilization score is a real-time factor that only looks at your current balances and has no memory of the past.

Any payments you make to reduce your balance by your due date will be reflected on your next statement. As soon as the credit bureau receives your new statement (usually within a few days), your credit score should go up. Some credit card companies will even update your balance with the credit bureaus early if you call and ask.

Stopping New Credit Applications

Another nearly instant change is when you stop making new credit card or loan applications to try to dig out of debt. Each application lowers your credit score, so stopping is the first step to improving.

Once you stop applying for new credit, your previous applications stop affecting your credit relatively quickly. They’re only reflected on your credit report for two years, and don’t even affect your credit score after the first year. Better still, the effect of a credit card application is lessened after a few months. You should see credit score improvements even before the year is up.

Successful Credit Report Disputes

If you believe information on your credit report is incorrect and file a dispute, the credit bureau has between 30 and 45 days to investigate the dispute depending on its type. If your dispute is successful, the credit bureau must immediately update your credit report.

If the information you disputed was completely erroneous or unsubstantiated, it will be removed as if it never happened. Your credit score will be recalculated without the negative information.

If the information was correct but the date was wrong, the date will be adjusted. Because negative items have less effect on your credit over time, if the date is adjusted into the past, you should see a bump in your score.

The total time to complete a dispute and have your credit reported updated should be about two months.

Closing Accounts

You may hear that closing an old credit card will drop your credit score — that’s a myth. If you’re trying to fix your credit, you might wrongly think you need to keep paying an annual fee to keep your credit score up. If you don’t like a credit card, go ahead and close it today.

Positive account history stays on your credit report for 10 years after you close the account. By then, you’ll have replaced the positive history with more positive history.

The only thing to worry about is if you have a credit card with a high limit that accounts for a large portion of your available credit. In that case, closing the account could increase your credit utilization and lower your score. But, as explained above, your credit score will bounce right back up once you’ve paid down those other balances.

Late and Unpaid Accounts

If you have late payments, charge-offs or collections on your credit report, these items are generally reported for seven years plus 180 days from the date they occurred. After that time, they will fall off your credit report.

Luckily, their effect also lessens over time. You will see credit score improvements long before seven years as long as you don’t incur new negative items. In addition, isolated late payments lose weight much faster than longer patterns.

There are also a couple of tricks to removing these items even sooner. One is simply catching up on your payments, then calling or writing a letter to the lender apologizing for your mistake and asking the lender to remove the negative report. If that doesn’t work or you’re still behind on payments, some lenders will agree to remove the negative report in exchange for immediate full payment.

Tax Liens

Tax liens are another reason to avoid owing money to the IRS. An unpaid tax lien can stay on your credit report for up to 15 years, and paid liens remain for up to seven years.

However, the IRS is forgiving if you pay your debt or make arrangements to pay. Depending on the amount you owe and how delinquent your account is, you may be eligible to have the lien erased as if it never happened.

Bankruptcies

Bankruptcies stop collections and wipe out past due balances, but they don’t wipe your credit report clean. All negative information from before the bankruptcy will stay on until its usual expiration date. The bankruptcy itself remains on your credit report for 10 years.

Like with other negative information, the impact of a bankruptcy lessens over time. People who make a focused effort to rebuild their credit after a bankruptcy can often reestablish a good credit rating within a year or two after their bankruptcy.

Sources:

  • http://www.consumerfinance.gov/askcfpb/1339/if-credit-reporting-error-corrected-how-long-will-it-take-i-find-out-results.html
  • http://blog.equifax.com/credit/how-long-does-information-stay-on-my-credit-report/
  • http://www.experian.com/blogs/ask-experian/credit-education/score-basics/improve-credit-score/
  • http://credit.about.com/od/creditscorefaq/fl/How-Long-Does-it-Take-for-Your-Credit-Score-to-Improve.htm
  • https://www.nerdwallet.com/blog/finance/how-long-high-credit-utilization-ratio-hurt-credit-score/
  • http://www.investopedia.com/ask/answers/102814/how-long-does-information-stay-my-credit-report.asp
Jun 20
0

Can I Repair My Credit After Bankruptcy?

By | Ask a Credit Expert, Bankruptcy, Consumer Rights, Credit Laws, Credit Repair, Personal Finance, Your Credit

Credit Repair After Bankruptcy

Bankruptcy sounds like a dirty word, but for many people, it is a lifeline to starting over. Whether you lost your job, were overwhelmed with an unavoidable expense or found yourself dealing with a costly illness, bankruptcy was designed to give people a chance to begin again. However, bankruptcy does take a serious toll on your credit score.

Understanding the Impact of Bankruptcy

Luckily, that’s not to say that your credit score is going to be ruined forever. According to the Federal Trade Commission, your bankruptcy can stay on your credit report for as long as 10 years after your debts are discharged, and that can make accessing new credit, buying a home or even getting a job difficult. While the impact can be severe, it is possible to repair your credit after bankruptcy. It just takes some proactive efforts on your part.

Look at it like this: Your credit score is meant to be indicative of how risky it is to let you owe money. High balances, late payments and anything else that could show you may be living outside your means is suspect. Filing for bankruptcy is largely the culmination of those issues. Now, you may have had extenuating circumstances that were completely outside of your control, or you may have merely gotten underwater and couldn’t find your way out. Whatever the case, the bankruptcy on your credit report is objective; it doesn’t matter why it happened. To repair your credit, you have to demonstrate that you are no longer a credit risk.

Starting Over After Bankruptcy

The first advice most people hear after filing for bankruptcy or facing some similar credit crushing issue is to establish new credit as soon as possible. That is good advice, but it is incomplete. Repairing your credit after bankruptcy will require that you have accounts on which you make regular payments. Getting a loan and then paying it off will not do nearly as much good for your credit report as making consistent payments.

“The key is to establish at least three positive trades actively reporting on each of your reports with Equifax, Transunion and Experian,” explains Marco Carbajo for the Small Business Administration. “For example, if you’re currently making timely payments on a car note but have no other positive credit that’s active, then you should obtain two secured credit cards and use them regularly.”

Understanding Your Credit Score

Aside from exercising your credit, you also want to practice good spending habits. According to the Federal Reserve Board, your credit score is influenced by whether you make your payments on time, the amount of debt you have, the number of accounts you have, the length of your credit history and how much you owe.

For instance, once you get your first credit cards after bankruptcy, you will want to make sure that you keep the amount of debt on those cards at less than 30 percent of the credit limit, and increase your credit limit whenever you can – the higher your credit limit, the more your creditors trust you and the better it looks on your credit reports. Also, make sure you are making your payments on or before the due date and paying any billable amounts in full.


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Being Selective About Your Credit

After bankruptcy, you want to be selective about where you find your credit as well. Many people with bad credit are sold solutions that promise to provide them access to new credit far more quickly than through any other source, but beware of those offerings. Even if the lender is legit, if the company is known as a “high-risk lender,” using them for your credit or banking needs could actually hurt your credit score. Instead, focus on well-known lenders and credit companies. Choosing a big bank over a high-risk lender, even if it means you have to start with a lower credit limit or a secured credit card over a traditional credit card, looks better and may even give you more options for growing your credit as you repair the damage from your bankruptcy.

Righting the Wrongs in Your Credit Report

You should also take a look at your credit reports to make sure that the debts from your bankruptcy were discharged properly and that all information is accurate. An error on your credit report can really work against you. To do correct inaccuracies, the Federal Trade Commission says that you will need to obtain a copy of your credit report from each of the credit reporting agencies and inform them in writing of any inaccuracies. You may need to provide proof of the inaccuracy if possible, and it may be necessary to tell your creditor that you are disputing the entry. Hiring a credit repair company can make the process easier. They handle the paperwork for you and handle the dispute on your behalf.

Once you begin to take steps to improve your credit score after bankruptcy, you can start to see modest improvements pretty quickly. As long as you are careful with your credit, choose the right lenders and maintain accurate credit reports, you can repair your credit after bankruptcy.

Sources

  • Federal Reserve Board, “5 Tips for Improving Your Credit Score” http://www.federalreserve.gov/pubs/creditscore/creditscoretips_2.pdf
  • Federal Trade Commission, “Coping with Debt”, November 2012. https://www.consumer.ftc.gov/articles/0150-coping-debt
  • Federal Trade Commission, “Free Credit Reports”, March 2013. https://www.consumer.ftc.gov/articles/0155-free-credit-reports
  • Small Business Association, “How to Restore Your Credit After Hard Times”, Marco Carbajo, May 2013. https://www.sba.gov/blogs/how-restore-your-credit-after-hard-times
May 19
0

Pay Off Debts – 9 Affects on Your Credit Score

By | Ask a Credit Expert, Bankruptcy, Consumer Rights, Credit Laws, Credit Repair, Credit Reports, Credit Scores

Credit Repair - Pay Debts

Are you wondering how paying off your debt could affect your credit score? There’s no doubt that paying all of your debts is the ideal thing to do, but sometimes it just isn’t possible. If you’ve lost your job or suffered other hardships, you may have to choose which bills to pay. Here’s how each course of action will affect your credit score.

1. Paying in Full

You may be unable to pay in full now, but it’s worth considering in case you win the lottery, find a higher paying job or have some other windfall. When you start paying on time again, you’ll have positive payment history added to your credit report.

Unfortunately, any past late payments or other negative remarks will not be removed from your credit report when you bring the account current. They may affect your credit score for up to seven years from when they happened.

2. Paying Only the Minimum Payment

Paying the minimum payment due by the due date keeps your accounts current and avoids late payment penalties. Even when money is tight, make paying the minimum payment on every account your first priority.

When possible, you should pay more than the minimum. In addition to saving interest, you’ll also be improving your credit profile.

Paying only the minimum payment can lead to your credit card utilization ratio increasing, which will lower your credit score. Credit card companies also have internal models that flag accounts with only minimum payments as high risk, and they may reduce your credit limit or close your account.

3. Paying Late

Paying late should never be an option. Even if you’re trying to pay off a higher interest credit card first, don’t skip paying the minimum payment on your lower interest cards.

If you absolutely can’t make every minimum payment, you should understand the two payment deadlines. The first is the actual due date that must be met to avoid a late fee, while the second is for credit scoring purposes. Late payments aren’t reported to the credit bureau as long as you make the payment within 30 days of the due date.

4. Ignoring Your Bills

If you can’t make your minimum payments and have already had a late payment reported on your credit report, don’t just ignore the bill. It will only get worse.

Unpaid debts will be reported as charged off or result in a lawsuit and judgment against you. These have a much bigger negative impact on your credit report than late payments.

If you’re sued, you’re also at risk of having your wages or bank accounts garnished and losing even more control over your finances.


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5. Using the Debt Snowball Method

The debt snowball method is a strategy you can use once you stabilize your finances and are able to make more than the minimum payment on your credit cards. With the snowball approach, you focus on paying off one credit card at a time — either the lowest balance or the highest interest rate.

The downside to the snowball method is that your credit score may not rise as quickly as it could. It’s typically better to have moderate balances on all of your cards than to have one or two with no balance and the rest almost maxed out.

The credit card companies that you’re only paying minimum payments to may also get nervous, as explained above.

6. Taking Out a Loan to Pay Off Credit Cards

Taking out a loan to pay off credit card debt may or may not be advantageous. The biggest positive impact it will have is to bring up your credit score by reducing your credit card utilization ratio.

However, a loan will often have higher monthly payments than your credit card minimum payments. This puts you at greater risk of making late payments unless you’re absolutely sure you can meet the new payment amount.

Of course, you’ll also need to compare the interest rate of the loan to your credit card rates to see if it’s worth it. This is more likely to be the case if previous late credit card payments have pushed you up to the penalty APR.

7. Offering a Settlement

If lenders believe there is a risk they won’t be paid in full, they’re often willing to accept a lump-sum settlement or a modified payment plan. Legally, you won’t owe them any remaining balance, but your account won’t be reported as in good standing on your credit report.

Your credit report will also reflect that you settled the account for less than what you owed. As with other options, past negative history is not deleted.

8. Paying for Deletion

Paying for deletion is a type of settlement where you ask the creditor to remove negative items from your credit report in exchange for your payment. You may also be able to ask that the account be marked as paid in full rather than settled or charged off.

Technically, the credit bureaus don’t allow this practice, but many creditors bend the rules if it helps them get paid. If you’re successful, the negative items will be removed from your credit report, and your score will be the same as it would have been if they were never added.

9. Declaring Bankruptcy

A bankruptcy in itself has one of the largest negative impacts on your credit score, and it also doesn’t erase negative history. However, bankruptcy will stop collections and prevent new negative marks from being added to your credit report.

If you can’t keep up with your payments, bankruptcy may be the best option to stop the damage and allow you to focus on rebuilding your credit score.

Sources:

  • https://www.consumer.ftc.gov/articles/0152-credit-scores
  • http://www.consumerfinance.gov/askcfpb/317/what-information-goes-into-my-credit-score.html
  • http://www.federalreserve.gov/pubs/Bulletin/1996/796lead.pdf
  • http://www.sites.ext.vt.edu/newsletter-archive/fmu/2002-04/factors.html
  • http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.203.3472&rep=rep1&type=pdf
  • http://www.myfico.com/crediteducation/whatsinyourscore.aspx
Aug 30
0

Consequences of Filing for Bankruptcy

By | Bankruptcy, Credit Repair

As you read in our last post, you have a lot to consider before you file for bankruptcy. You also need to consider the consequences once you do file. Bankruptcy will help you restructure and eliminate debt, but it will affect you for many years to come.

Credit Rating

Your bankruptcy filing will appear on your credit reports for ten years after you file. Although you may still be able to obtain loans during that time, when you do get one, you may have to deal with higher interest rates. Late payments and unpaid debts, on the other hand, only remain on your credit report for seven years.

If you can avoid filing for bankruptcy and instead repair your credit by having errors removed from your report, for example, you could have an easier time securing affordable loans, or at least have less of a wait. Seven years isn’t exactly a short amount of time.

Discrimination Because of Bankruptcy

Government agencies may not discriminate against you for filing for bankruptcy. However, private entities have more leeway. For instance, your employer may not fire you or punish you if you filed for bankruptcy, but a new employer can refuse to hire you. Other forms of legal discrimination range from having your renter’s application denied to having your college transcript withheld (if it is from a private university).

How Long Until Everything is Normal?

Every situation is different, but one thing is for sure: As we mentioned above, your bankruptcy filing will be on your record for ten years. That doesn’t mean that it will take you ten years to obtain a good credit score, but it will make it more difficult than if you can manage to avoid bankruptcy and instead handle your situation through careful budgeting and credit repair.

Effect on Mortgage and Car Loans

The type of bankruptcy filing you make will determine if you can stay in your home and keep your car, assuming you have loans on each. If you declare Chapter 13 bankruptcy, you can keep your home if you are up-to-date on your mortgage payments, or if you can restructure your payment plan. If you file for Chapter 7 bankruptcy, though, you may likely have to surrender your home to your lender. The situation is similar with your car loan when you file for Chapter 7 bankruptcy. If you are behind or unable to make payments on that loan, your car may be seized as well.

The risk of foreclosure and losing your car, and the cost and difficulty of securing future credit all may be difficult on you and your family, so closely consider your bankruptcy and credit repair options before making a decision. If you think that bankruptcy isn’t your best option, consider Ovation for your credit repair needs. We can provide the tools you need to re-establish your credit and feel more confident with your financial situation.

 

Aug 28
0

7 Things to Think About if You’re Considering Bankruptcy

By | Bankruptcy, Credit Repair

If you’re considering bankruptcy, you already know that it’s a big decision that shouldn’t be taken lightly. With so much involved, though, it can be difficult to know where to start or if working on credit repair alone may be enough to help you out of your situation.

Before you declare bankruptcy, here’s a list of seven things you need to consider:

Chapter 7 or Chapter 11

There are two kinds of bankruptcy: Chapter 7 and Chapter 11. Chapter 7 bankruptcy is sometimes called “fresh start” bankruptcy. You can read a full description of Chapter 7 bankruptcy on uscourts.gov. The long and short of it, though, is that you will be free of debt, but your debtors will be able to seize some of your property as compensation of that debt.  Chapter 13 bankruptcy on the other hand, allows you to set up a payment plan to pay your debts back over the course of three to five years, depending on your situation.

Cost of Bankruptcy Filings

You will be charged a fee when filing for bankruptcy. If you are filing for Chapter 7, that fee will be $200. The fee for Chapter 13 filings is $185. These fees cannot be waived. However, you do not need to pay them immediately upon filing for bankruptcy; instead, a payment plan for the fee can be created. If you use an attorney, you will have additional costs to pay, which brings us to the next issue.

Use of an Attorney

While you are not required to use an attorney, it would probably be a good idea, because using one will greatly increase the likelihood of your filing being successful.

Property You Can Keep

As explained previously, you can keep all of your property if you file for Chapter 13. When you file for Chapter 7 bankruptcy, you will be able to keep “exempt” property such as food, clothing, and furniture. You should consult laws in your state to determine what property is considered exempt where you live, but it is typically property that is essential to your livelihood. Food and clothing are exempt, whereas the pinball machine you bought for the basement game room probably isn’t.

Debts that Can’t Be Discharged

There are some kinds of debt that cannot be discharged. For Chapter 7 filings, some of the most common are taxes and tax liens, student loans, alimony, child support, and debts obtained through fraud.

The list of debts that can’t be discharged is similar for Chapter 13 filings. Added to that list are unscheduled debts, interest owed on nondischargeable debts, and debts incurred after you file your case.

Going to Court

You will probably not need to spend a lot of time in court, but you will need to make at least one appearance there for a “meeting of creditors.” You will be asked to answer a few questions from the court trustee, including if you have had a bankruptcy discharge before and how long you have lived at your current location. Your creditors may also ask you questions, although they may not be abusive.

Credit Repair Instead

If Chapter 7 and Chapter 13 bankruptcy don’t sound like options you want to pursue, consider Ovation for credit repair instead. You may be able to get out of your debt situation through a combination of budgeting and having errors on your credit report fixed, as well as other valuable tools we offer. We will give you a complimentary consultation to determine if credit repair is in your best interest and discuss how we can be of assistance as you begin rebuilding your credit.

 

Dec 14
0

When Is Bankruptcy the Right Choice?

By | Bankruptcy, Personal Finance

Filing for bankruptcy is never an easy decision and should only be considered as a last resort. Unfortunately, because of the long-term unemployment, the housing crisis, and the recession, more people are facing that last resort than ever before. Chapter 7 bankruptcy is a formal judgment that releases you from most of your debts.

If most of your debt is from unsecured credit cards or a mortgage that you can no longer afford, obtaining a judgment of bankruptcy may be your only option if you are unable to find work, find a short sale buyer, or work with your bank to obtain a home refinance. If your creditors are attempting to seek judgment against you so that they can garnish your wages or attach your property, bankruptcy may be your only option.

There are certain debts that you cannot include in bankruptcy:

  • back child support
  • student loans, in most cases
  • income taxes owed for the last three years
  • recent credit purchases or cash advances

In other words, you can’t go out, max out all of your credit cards, and then file bankruptcy. The court will allow those debts to survive the bankruptcy.

If you have cosigners on your loans or credit cards, they may be held responsible for your debt. For example, if you maintained a credit card that was in your name and your ex-spouse’s name, and you file bankruptcy, the creditor can try to collect the debt from your ex-spouse.  While some property may have to be surrendered, you are allowed to keep certain items:

  • your vehicle (if you have a loan on your vehicle you will have to reaffirm the debt to keep it)
  • clothing (but not minks or other high value items)
  • some household furnishings and appliances
  • some jewelry
  • your pension
  • tools for your business
  • public benefits such as TANF or SSI that are in your account

You may be required to surrender prized possessions, such as expensive collections, heirlooms, second vehicles, and second homes; you will likely be required to surrender most cash, stocks, and bonds. More importantly, a judgment of bankruptcy will remain on your credit report for up to ten years, making it difficult for you to establish credit, even more difficult to buy a home, and often impossible to get viable interest rates on loans. There is life after bankruptcy, but it can be tough. Before considering bankruptcy, consider alternatives that will be less damaging to your credit. Ovation may be able to help. Contact us for a free evaluation.

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