Nora's Guide To Life After Bankruptcy
Bankruptcy does not mean the end of your credit life. You might feel you never want credit again. But that may be shortsighted. There may come a time in your life when you want or need credit so it's a good idea to think about it sooner rather than later.
The following are a few suggestions that might help.
Get Your Credit Report
Your first step is to find out what potential creditors will find out about you. You can get a free copy of your credit report once a year from all three credit reporting agencies. Call 1-877-322-8228 or visit www.annualcreditreport.com. If you've already received free credit reports in the past 12 months, you should contact each agency:
- Trans Union
PO Box 1000
Chester, PA 19022
PO Box 105873
Atlanta, GA 30348
PO Box 2104
Allen, TX 75013-2104
Fix Mistakes in Your Credit Report
There are always mistakes in credit reports. Everyone should pull a copy once a year to correct the errors. The first thing to do is to read it carefully. It's tempting to jump right to the creditors but take your time and read through the thing line by line. Check your name, social security number everything.
Next, check each account to see if it is accurate. It should show the debts as being discharged in bankruptcy. Quite often, there will be a debt or two still there, listed as something you owe. Also be on the lookout for any debts that are listed twice. The report should show just the original account, not any collection agency. It's common for the same debt to surface in various forms, making it look like you owed more than you did. I repeat there are always mistakes on these things. That's because the credit reporting agencies simply report what information they have and the creditors have no real incentive to let them know the debts have been discharged in bankruptcy. So you'll have to do it yourself.
All the credit reporting agencies include instructions on how to dispute a debt. Fill it out completely and send it in. Be sure to include your bankruptcy papers (a copy of the hearing notice, the discharge order and the page where the disputed account is listed.)
By law, the credit reporting agencies must investigate and correct misinformation.
Beware Credit-Repair People
It might be tempting to hire one of those places that advertise that it can fix up your credit report from a fee. Be careful. Some of them even claim they can get rid of a bankruptcy. There is no legal way to do this. A bankruptcy will remain on your credit report for ten years. I repeat there's no legal way to get rid of it before then.
There may be some legitimate credit-repair companies out there but even they can't do anything that you can't do for yourself. It might take some time but you'd have to spend some time to make sure the people you're hiring are legit so you may as well do it yourself. Also, there are better ways to spend your money to rebuild your credit.
Secured Credit Cards
Secured credit cards look like a regular VISA or Mastercard but are really secured, meaning you've already paid the company and can charge up to the amount that you've put in. This is helpful because there are times when you might need a credit card, such as when renting a car or reserving a hotel room. Also, this is a way of rebuilding your credit because after a time, the company may raise your credit limit to beyond the amount you've put in. When looking for a secured credit card, be sure the company will report the account as a regular account, rather than as a secured one. There's no point in letting the rest of the world know your account is secured.
Once you have a card, charge small amounts and pay them right away to keep your secured deposit intact. Eventually, the credit card company will raise your limit. Even then, don't go crazy. It's very easy to find yourself in over your head.
Unsecured Credit Cards
You probably already have received an offer in the mail for a "guaranteed" credit card for which you will not be turned down. Be careful. I suspect many of them are rip-offs that will charge you some outrageous fee and give you nothing in return. Some will give you something a list of companies that offer credit cards.
If you're tempted to respond to one of these offers, please read the fine print and deal only with a major bank that you've heard of. And don't send off any money you can't afford to lose for that "membership" "annual" or "processing" fee.
Buying A Car
After your discharge has been entered, it is possible to get a loan to buy a car. You will most likely be paying a much higher interest rate. And you may have to come up with a bigger down payment. But it is possible to buy a car on time after bankruptcy. Stick with the major dealers, or better yet, try to get a loan from your bank or credit union.
Renting An Apartment
Some places have strict rules that they won't rent to people with bankruptcies on their records. Others aren't so inflexible. It's a matter of shopping around. Be up front about the bankruptcy, of course. They're going to find out anyway. But be prepared to provide helpful information. Perhaps you could get a letter from your current landlord that all your rent payments have been made on time.
Buying A House
Yes, you can buy a house after having been through bankruptcy. Don't expect to right away, of course, but it's possible. My very unofficial, unscientific survey finds that people can buy houses about three years after the bankruptcy. I base this on when former clients call me for copies of their bankruptcy papers after they lost theirs. Please don't do this! Hang onto those papers both the petition I gave you at the hearing and the discharge order that came in the mail after your case was over. The mortgage company will want to see copies.
Before you go house-shopping, go mortgage-shopping to see what you might be able to afford. But before you do that, check your credit-report again if it's been awhile and correct any mistakes.
Of course, some mortgage companies won't want to talk to you. It's a matter of shopping around. But if you've cleaned up your credit report and have one good credit reference (such as the secured card or your landlord), you'll eventually find a mortgage company that wants your business.
Some Unsolicited Advice
Once you have rebuilt your credit, don't go crazy. Don't apply for a whole lot of different things because each application will pop up on your credit report. Creditors get leery if they see someone who wants credit from everyone. And once you do get credit, make sure you make your payments on time. Never take on more debt than you can handle. Time will pass and some day your bankruptcy will be a distant memory.