Rebuilding Your Credit Through Bankruptcy
Most individuals with debt and credit problems think of bankruptcy as a last resort, and something that will irreparably destroy their credit. While that might have been a fair assessment some years ago, that is not the case today. Many individuals now see bankruptcy as the first step in rebuilding their credit. This article explains why. We can also help with credit repair after bankruptcy.
The reporting of credit in the United States is governed by the Fair Credit Reporting Act. It limits the reporting of most adverse credit to a period of seven years from the time the debt is sent to collection or charged off. For people who are behind on their credit cards and other installment payments this usually means spending years to payoff credit card debts or bring the debts current followed by seven years of poor credit ratings. For many people in this situation credit problems can last a decade or more.
For those who are no longer able to even pay the minimum payment on their installment accounts, things can get worse. When credit card payments fall behind by three months or more, most credit card companies file suit. While many credit card suits result in compromises in which a portion of the balance is paid out over time, many also result in judgments. Judgments cause additional problems.
Judgments in Florida and many other states remain effective for a period of twenty years. Florida has a special recording statute requiring the judgment holder to re-record the judgment every seven years in order for it to remain a lien on real property, but the ability of a creditor to execute on personal property extends to twenty years regardless of re-recording. While judgments do not always show up on credit reports, particularly after the seven year mark, they will always show up on a search of the Public Records. A name search in the Public Records is a normal part of the process in obtaining a mortgage loan. Judgments give the judgment holder the ability to garnish wages, garnish bank accounts or send the Sheriff out to levy on personal property, automobiles, etc. Judgments also will impact on your ability to obtain new financing, since the item you are financing may be at risk of seizure by the judgment creditor. Lenders usually require that you obtain a Satisfaction of Judgment before they will give you new financing.
Bankruptcy and Future Credit
Filing for bankruptcy protection is considered adverse credit and will be picked up by the major credit reporting services. Unlike other adverse credit, a bankruptcy filing can be reported for ten years. This, initially, is very damaging to your credit. However, lenders now view bankruptcy for what it is, a fresh start for the debtor.
Federal lending guidelines followed by many mortgage lenders and banks permit the lenders to consider a loan applicant once two years has passed after a bankruptcy discharge. If you qualify for a Chapter 7 filing you can file a bankruptcy petition, obtain a discharge of your debts in about four months, and establish good credit about two years later. Some debts, including recent tax liabilities, alimony, child support and fraudulent debts may not be discharged. You must maintain some credit, such as a home loan, car loan or credit cards, to establish good credit after discharge. Many of my bankruptcy clients apply for secured credit cards for that purpose. Most have better credit ratings two years after discharge than they had when they first came to me. Bankruptcy can provide that opportunity.