Recovering From Bankruptcy – Part 2:

Posted on 13. Jan, 2006 by in Saving & Investing

Continuing with Recovering From Bankruptcy – Part 1: Starting is the Hardest Part, the following are more tips on recovering after bankruptcy.

Obtain a copy of your credit reports. Remember that you can now legally obtain a FREE credit report from each of the major credit agencies each year – so take advantage! After receiving your report, be sure to challenge any entries that still show you are in debt. Although bankruptcy can legally clear you from any obligation to pay debtors, you cannot change the past. As the BK Blog states, “A credit history showing a zero balance and a bankruptcy discharge is better than a credit history showing (incorrectly) thousands of dollars of outstanding debt and a bankruptcy. Remember, creditors who have been discharged in bankruptcy are not going to make correcting your credit report a priority – you need to take an active role in this process.”

Purchasing a Car. The important this about purchasing (or leasing) a car after bankruptcy is asking the dealer about financing BEFORE you apply for credit. The worst thing you can do is pick out your car, apply for credit, and quickly be denied. That application can negatively effect your FICO score up to 12 points and further slow your recovery. It’s important to be honest and upfront with the dealer and ask, “Do you lend to people after bankruptcy? If so, at what terms?” When you are able to get financing, try and obtain it through captive lenders (car manufacturers) or Banks before turning to Credit Unions. If you do have to go with a Credit Union, be sure and ask if they report to the credit agencies – by reporting your ON TIME payments (they will be on time, right?) to the credit unions, that car purchase with strengthen your credit again.

Buying a Home. Other than transportation, the other biggest worry of people recovering from bankruptcy is housing. As early as 1-2 years after bankruptcy you may be able to receive a home loan. The Federal Housing Administration (FHA) and Department of Veteran Affairs (VA) have specific guidelines for accepting borrowers who have filed for bankruptcy. For example, the FHA will insure mortgages to individuals who have filed Chapter 7 liquidation bankruptcy two years after the discharge if the borrower has reestablished good credit (or has chosen not to incur new credit obligations), and has demonstrated an ability to manage financial affairs.You may want to make contact with a U.S. Department of Housing and Urban Development (HUD) approved housing counselor or local support program for advice and assistance with purchasing a home. Unfair lenders can sometimes target people recovering from bankruptcy so be sure to research your loan options, know your rights and read the small print. (Debt Lounge)

Secured Credit Card. Consider obtaining a secured credit card after bankruptcy. Secured and unsecured cards can be used to pay for goods and services. However, a secured card requires you to open and maintain a savings account as security for your line of credit; an unsecured card does not.

The required savings deposit for a secured card may range from a few hundred to several thousand dollars. Your credit line is a percentage of your deposit, typically 50 to 100 percent. Usually, a bank will pay interest on your deposit. In addition, you also may have to pay application and processing fees — sometimes totaling hundreds of dollars. Before you apply, be sure to ask what the total fees are and whether they will be refunded if you’re denied a card. Typically, a secured card requires an annual fee and has a higher interest rate than an unsecured card. However, before getting such a card, be sure to read BankRate’s 10 Questions Before Getting a Secured Credit Card.

One Response to “Recovering From Bankruptcy – Part 2:”

  1. Lindsay

    20. Jan, 2006

    Great series! Do you have any info on purchasing real estate after bankruptcy for Canadians? I see you wrote about that in this entry, but from an American perspective, so that doesn’t help us Canadians a whole lot (or any other nationality, for that matter).

    Thanks for all the great info!

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