September 17

7 Ways To Recover After A Bankruptcy

7 Ways to Recover After Filing Bankruptcy Encino Bankruptcy Attorney

When people file for bankruptcy one of the most common concerns is how long it takes to recover from a bankruptcy filing. Although many of the downsides to bankruptcy are overblown, it’s not without consequences. The biggest concern clients voice is, “When will this be off my record?” What they typically want to know though, is a slightly different question – when will the bankruptcy stop negatively impacting credit?

A bankruptcy remains on a credit report for 10 years, but it is not a dramatic negative mark for that period. Most clients’ credit scores rise to the high 600 to low 700 range within 2-3 years. Beyond that, they continue to go higher. I’ve had clients who have recovered even faster, with scores above 700 one year after filing bankruptcy. Each person is different but there are things you can do help your credit score recover more quickly. Here are some ideas:

1. Wait a month or two after your bankruptcy case has closed and then obtain a credit report. Credit monitoring services can be particularly useful and these days there are some great free providers like CreditKarma and CreditSesame. All debts that existed prior to filing bankruptcy (assuming they weren’t reaffirmed), should show up as “included in bankruptcy” or something similar. They should not continue to show delinquent each month. Credit reporting, however, is fraught with errors and bankruptcy is no different. If you notice some of your creditors are not properly updated after filing bankruptcy, the easiest way to resolve it is to dispute the item with the credit bureaus. Include proof of you bankruptcy filing, the date you filed and your case number. The credit bureaus will then update the information to show that the debt was included in a bankruptcy. Ensuring you don’t have ongoing derogatory items due to credit errors is an important part of rebuilding your credit after a bankruptcy.

2. Learn to live off of cash. This doesn’t mean don’t ever use credit again. It means that you should budget so that you don’t ever have to live using credit again. If you learn to budget and live off of income, not credit then you have complete control over when and where you use your credit. Doing that will ensure you only use credit in the future in ways that benefit you.

3. It may sound crazy but go get a credit card. Many clients get offers for new credit cards mailed to them immediately after filing bankruptcy. Most of these will have very high interest rates, but for the recently bankrupt these cards can help. Take out one or two cards and just run a few charges each month. Pay the balance off every month so you don’t incur any interest charges. This will provide positive credit reporting each month and help push your score up faster.

4. If you can’t get any traditional credit cards, go for a secured credit card. A secured credit card is one where you provide the bank with a deposit equal to the credit limit on the card. The banks report secured credit cards the same as traditional credit cards and the positive reporting is just as beneficial. Not all banks provide secured cards, but Bank of America, Wells Fargo, CapitalOne, and US Bank all offer them.

5. Make sure and pay all your bills on time. It’s imperative that all your utilities, medical bills and new credit bills are paid on time every month after bankruptcy. Nothing will derail a fledgling credit score faster than newly reported defaults after a bankruptcy filing.

6. Don’t apply for multiple new credit accounts in the first two years after bankruptcy. Each time you apply for new credit, it appears on your report as an inquiry. Each inquiry hurts your credit score very slightly, so having frequent credit inquiries can add up to bring down your score.

7. Try to keep the same address. A portion of your credit score is based on your stability. One of the factors used to determine this is your FICO score. The statisticians at FICO know that a borrower who has lived in their home for 20 years is less likely to default than a renter who moves every year or two. Although it’s a small portion of what goes into your score, every little bit helps.

If you follow these simple steps, you should see your credit score rise faster than you might expect after bankruptcy. For most clients it’s a 2-3 year recovery where the score gets a little better each month. Following these steps may make your score recover even faster.

September 14

10 Signs You May Be Headed For Bankruptcy

10 Signs I m Headed For Bankruptcy

When a bankruptcy is filed, it begins with the bankruptcy Court entering an Order For Relief.  There’s a reason it’s called that.  Nobody wants to file for bankruptcy, but sometimes it’s the only way to get relief from crushing debt.  Most clients who end up fling bankruptcy, however, would never have thought they were going to file.  Here are some signs that you may be on the path to bankruptcy.

1.  Your credit cards balances are near their limits.  The people at FICO are pretty smart.  They’ve spent tons of money and have some of the world’s best statisticians working to figure out items that correlate to defaulting on debt.  One thing they care a lot about is how much of your available revolving credit is being used.  They know that when people start using up all their available credit, it’s a big warning sign that they probably cannot afford to keep maintaining the status quo.  If you find your credit cards are all about to hit their limit, that’s a sign that something is wrong.

2.  You have no way to save.   Whether it’s for a rainy day, a vacation fund, just in case, or for retirement, we all want to save money.  If you find that you have to stop contributing to your retirement account, or are unable to save any money each month, that’s a sign your finances may be in trouble.  Debt shouldn’t swallow up so much of your income that nothing is left for savings,

3.  You’re unable to earn enough to pay down debt.  If you find yourself unable to make any meaningful dent in your balances, that’s not a good sign.  Credit cards can be a very useful tool.  They can also spiral out of control.  If you find that the minimum costs each month to maintain the balances is all you can afford, the fist step is trying to lean down your monthly budget.  You can also try to work overtime.  If  after leaning down your monthly budget or trying to add overtime you still can’t get any traction paying down debt, then you may have reached a point where it’s no longer realistic to ever get out from under your debt without bankruptcy.

4.  You forego needed items to keep up with your debt.  Not going shopping as often, or not buying the newest smartphone is not a problem.  Those things are all part of smart money management.  If you find yourself foregoing necessary items however, such as health insurance coverage, or vehicle repairs, then there may be a problem.  When you’re skipping on necessities to keep up with debt, that’s not a good sign.

5.  You’re taking out loans against retirement accounts or life insurance policies to stay current on debt.  Raiding your retirement account to try to finally get a hold of debt is never a good idea.  Retirement account loans may seem like a solution, but they come with large monthly payments that get automatically deducted right out of your paycheck.  Almost always the retirement account loan is a precursor to being right back where you were, but this time with the added problem of a large retirement account loan payment.

6.  Despite balancing payments, you can’t seem to get new credit any more.  Remember what we said above about those people at FICO being pretty good at rating who to give credit to.  If you’re current on payments but you still can’t seem to get approved for anything, it’s probably because your overall debt load is so high that you look like a big risk to lenders.  When they see your debt, they know that the odds of paying it back are not good.

7.  Robbing Peter to Pay Paul.  If you find yourself borrowing from one creditor to make payments on another that’s a sign of a serious  cash flow problem.  The worst version of this is when people alter their income tax deductions and reduce the amount of income tax deducted from their paycheck to have a larger amount available each month.  That decision always catches up with them when it’s tax time.  The end result is you probably still owe the other creditors but now you’ve added one of the most difficult debts to get rid of and one of the most powerful creditors out there.

8.  Your bank account goes negative during a month.  You’re bank account shouldn’t be going negative.  If you find that you’re bouncing payments and keep going negative before that next paycheck, that’s a strong sign that the current plan isn’t working and that bankruptcy is likely on the horizon.

9.  You’re behind on your home or vehicle loan.  Homes and cars are priorities one and two.  A home is most people’s largest lifetime investment and it’s the place their family lives.  People don’t go into default on their mortgage unless the situation is dire.  Similarly, without a car, you can’t get to work.  If you’re in default on your mortgage or car loan, you’re past the point where you need to call a bankruptcy attorney.

10.  Creditors are calling and sending letters, or have sued you.  Once you’re far enough in default that you’re being hounded by creditors, it’s undoubtedly bankruptcy time.  Debt collection starts a cycle that is nearly impossible to get rid of.  Creditors calling incessantly and sending harassing letters means things have reached a breaking point.  Eventually they will sue and you will face garnishment or levy.  If you’re at this stage, it’s time to get relief – by calling a bankruptcy attorney to see about your bankruptcy options.