Credit Score After Bankruptcy

Most people are under the impression that bankruptcy is the worst thing for your credit.  Many believe it is a last resort after all other avenues have been exhausted (draining 401K or other retirement savings, borrowing money from friends or relatives, selling possessions, etc.).  Would you be surprised to learn that you can improve your credit through a Chapter 13 or actually erase past poor credit choices through a Chapter 7 to make a fresh start without depleting your retirement funds, liquidating your personal property, or borrowing additional money?

While there is no quick fix for bad credit scores, we have options that may put you on a faster track to improvement. Call us today at 866-261-8282 to speak with one of our licensed attorneys about your financial circumstances. We offer free consultation and free advice on how to regain financial control to improve your credit. For your convenience, we have seven office locations in: Detroit, Southfield, Dearborn, Flint, Ann Arbor, Lansing and Warren, Michigan.

Improving Your Credit Score

According to FICO, the most common credit-scoring system, here are some tips for improving your credit score:

• “Paying your bills on time is the most important contributor to a good credit score.  Delinquent payments and collections can have a major negative impact on a credit score.  A credit score reflects payment patterns over time, with more emphasis on recent information.”  If you have missed a payment, get current and stay current.  The longer you pay your bills on time, the better your credit score.
• Minimize outstanding debt;
• Avoid overextending yourself;
• Refrain from applying for credit needlessly;
• Pay off debt rather than moving it around;
• “Re-establish your credit history if you have had problems.  Opening new accounts responsibly and paying them off on time will raise your credit score over the long term.”

So how can this information empower you to make the choice to employ a Chapter 13 reorganization plan or a Chapter 7 fresh start?  We will show you point-by-point below.

Chapter 13 – A Positive Choice for Your Credit

Understand how each of FICO’s recommended steps for credit improvement are built in to the structure of the Chapter 13 plan:

• Re-establish timely, consistent payments to creditors:

  • The purpose of the Chapter 13 debt consolidation program is to create a balanced monthly budget based on your income, debt and monthly bills. The programs creates a hierarchy for your budget with the following priority rank:
    • Secured debt obligations (first mortgage, vehicle payment, arrearages, etc)
    • Priority (current tax debts)
    • Your monthly living expenses
    • Lastly, unsecured debts debts (credit cards, medical bills, second mortgages(s), loan deficiency debt, etc)
  • To balance your budget, the Chapter 13 plan will defer payments to your unsecured creditors while you are getting caught up on missed payments to secured creditors and can legally reduce the total amount you owe on your unsecured debt obligations.
  • The Chapter 13 plan has a built-in mechanism to establish regular monthly payments to your creditors. Each month you are in the plan, you are turning over funds to a court appointed Chapter 13 Trustee. This Trustee will make regular, consistent payments to your creditors through a court-approved repayment plan and takes the stress and strain out of monthly bill paying.
  • This ensures that your bills are paid on time and no late reports are sent to the credit agencies.

• Minimize outstanding debt:

  • The Chapter 13 focuses on paying down principal debt by locking in 0% interest repayment on:
    • Unsecured debts, such as credit cards, medical bills, personal loans, second mortgages and home equity loans, loan deficiency debt and old utility bills.)
    • Arrearages (past-due payments) on secured debts.
    • This means that you are paying down straight principal debt and therefore reducing debt each month of the program.
  • The plan allows for debt reduction or re-structuring on certain obligations:
    • Remove a Second mortgage or Home Equity Loan to rebalance your home’s value relative to current market conditions.
    • Reduce a vehicle payment by reducing interest rate and/or extending the terms of the loan
    • Reduce principal mortgage balance on Rental Properties to own home free and clear within 3 -5 years.
  • Reducing principal debt will improve your debt-to-income ratio as you move through the program. This improves your credit standing and puts you in a better position to obtain new credit sources during and at the completion of the 36 – 60 month repayment process.

• The Chapter 13 program deters participants from overextending themselves.

  The court requires that new debt (in the amount over $1,000) be approved by the court.

• Provides court protection from creditor actions that may further negatively impact your credit, such as:

  • Home Foreclosure
  • Vehicle Repossession
  • Judgments
  • Garnishments
  • Late reports to the credit reporting bureaus

• Finally, the Chapter 13 program is designed to pay down debt rather than moving it around.

Each payment to unsecured creditors goes straight to principal debt. At the completion of the program, whatever balances that remain on unsecured debt will be legally eliminated through a court-discharge.

For more information on how the Chapter 13 program could help improve your credit, call one of our qualified Chapter 13 attorneys today at 866-261-8282. We offer a free consultation to discuss your circumstances and long terms goals. At the meeting, we will discuss all of your available options and put together a game plan to get your credit back on track. Call us for your appointment or click here to schedule a consultation right now.

Chapter 7 – A Clean Credit Slate

Chapter 7 is a debt elimination program designed to wipe the credit slate clean and provides the opportunity to re-build your credit.  Through the Chapter 7 proceeding, you will receive a full court discharge of all unsecured debts and property that you surrender through the program (i.e. home or vehicle that you can no longer afford, etc.).  After this discharge, you have the opportunity to:

• Begin paying your bills on time.  With reduced debt, you may finally have the ability to pay all of your bills each month.  Remember, although your full payment history is evaluated, FICO puts “more emphasis on recent information.”
• Move forward with minimal outstanding debt after eliminating budget items that were no longer affordable. This improves your debt-to-income ratio which places you in a better position to receive new credit in the future.
• Apply for credit carefully to avoid getting over-leveraged again.
• Demonstrate financial stability through prudent budgeting and wise credit choices.

Chapter 7 provides immediate debt relief and the long-term opportunity to improve your credit standing.

How Long does it take to Re-build a Credit Score?

According to FICO, “you don’t rebuild a credit score…you rebuild credit history, which is reflected in your credit score.”

How do you do this?  While there is no “quick fix,” beginning the process of reasonable repayment through Chapter 13 reorganization or making an immediate fresh start through the Chapter 7 program could be your first actionable step towards improving your credit over the long run.  Certainly if you do nothing, your credit will not improve on its own.

Our attorneys specialize in debt resolution and credit restoration though utilizing Chapter 7, Chapter 13 and non-bankruptcy debt settlement.  We are here to provide you with our insights and advice with action steps to improve your credit and create a more stable financial future.

We offer free in-office or phone consultations to review your personal circumstances, analyze your situation and advise you on the best course of action. We specialize in bankruptcy law, debt resolution, foreclosure prevention and credit repair. We have offices in Detroit, Southfield, Dearborn, Flint, Ann Arbor, Lansing and Warren, Michigan. Please call us toll free at 866-261-8282 or click here to schedule a consultation right now.