Once you’ve filed for bankruptcy, the best thing you can do to repair your credit is to keep your debt low and always be sure to pay your bills on time, and whenever possible, in full. The best way to do this is to assure smart budgeting.You may also have legal options available to you after you’ve filed for bankruptcy, or even if you’ve only been in financial difficulty, which can help you repair your credit and can help you to move forward. One of the most important laws is the Fair Credit Reporting Act or FCRA of 1970. One of the primary protections of the Act is that it allows every person access to their credit report once per year from each of the three major credit bureaus, Experian, Equifax and TransUnion.
Once you obtain your report, the next step is to review it very carefully; it’s estimated that 3 out of 4 reports contain some sort of inaccurate information. The Act also provides means for correcting these mistakes by allowing you to challenge any information you believe to be incorrect. If you challenge something and the information isn’t verified within a certain period of time, the Act even requires that it be automatically removed. You can complete this process of challenging the information on your own or you can hire a professional to assist you; it is a very time consuming process oftentimes, so you must decide how much time you are able and willing to devote to the process when deciding whether or not to seek out help.
One thing to note about credit repair is that the ‘clock’ starts for leaving that account and information on your credit report from the date of the last activity. That means that if you have a written off or delinquent account remain inactive for a number of years and then pay it off, the information on that account has it’s time limit reset from the date of payoff causing a negative piece of credit information to last far longer on your report. When dealing with post bankruptcy repair, you won’t need to worry about anything discharged in bankruptcy, the time will begin to run at discharge, but you should be particularly cautious of any debts not covered and addressed in the bankruptcy proceedings.
As you move forward in an effort to repair your credit, it is also helpful to be aware that there are protections available to you from debt collectors as outlined in the FDCPA (Fair Debt Collection Protection Act) that protects you from excessive and inappropriate collection methods. You can set what times collection calls can come and where, especially if you do so in writing. Generally they’re allowed to call any number they have between 8AM and 9PM. However, if you make them aware of a certain time or place that calls would be inappropriate; they are not allowed to call.
No matter how many methods you use to rebuild your credit, it is a very long and time consuming process where you have to gradually show lenders that you can be trusted financially and that you’ve changed your situation. Always make sure that your credit report is completely accurate and be especially conservative with credit card and loan use. Always make your payments on time and be sure not to charge or borrow more than you can pay off in full within a given billing period. Over time, your credit will gradually begin to repair, you’ll save money by obtaining lower interest rates and you’ll be able to move forward in a much more financially stable situation.
After you’ve filed for bankruptcy, securing a loan may be challenging as many lenders will be very hesitant to offer a new secured loan. In some situations, there may be a few lenders who are willing to give you a fresh start but they’ll usually require income verification and specific down payments. (The average down payment is 3%, but in a post-bankruptcy situation, more may be required by the lender or may allow you to secure better rates and terms.) Other factors potential lenders will consider when evaluating a mortgage application will be employment history and debt to income ratio.
Although recovering from bankruptcy is possible, it is a time consuming process and usually you’ll need to wait at least 24 months after the discharge of your bankruptcy before you try to secure a mortgage again which is nominal compared to the up to ten years the bankruptcy can remain on your credit file. (Chapter 13 bankruptcy can stay on your file for up to seven years and a Chapter 7 bankruptcy can stay on your file for up to ten years.) The day after your discharge, you can start to improve your credit score; if you’ve made substantial improvements to your credit score in the first year, you may be able to disregard the two year rule.
To demonstrate to potential lenders that you’ve modified your financial situation, it’s important to always pay your bills on time. You should keep open accounts (both loans and credit cards) but with modest limits and never exceed 30% of their limit, being sure to pay them off in full at the end of every month. This will help to raise your credit score and show potential lenders you’ve reformed as quickly as possible. After you’ve completed a bankruptcy, defaulting on loans or receiving charge-offs is very bad and will make it nearly impossible to get a mortgage again.
Some financial experts recommend hiring a mortgage broker to assist you after your bankruptcy in finding a new mortgage. The proponents of such options say that by hiring such a person, it’ll make the process much smoother as they’ll act to compile and disseminate all the information for you. There are equal numbers of analysts to support both obtaining a mortgage broker and using a online option and the difference between the two seems to be how rapidly you want results and how much time you have to personally invest in the process.
When it comes time to search for a mortgage after bankruptcy, there are two distinct avenues to pursue: online and traditional lenders. While working with a traditional lender allows you to work face to face with your lender and discuss different options with them, online lenders often specialize in mortgages for customers after bankruptcy and allow you to compare several different rates all at once. Many people who keep a clean credit history after bankruptcy will be able to recover and get a mortgage and can even secure adequate financing for what they need.
There are certain things any business owner must do in preparation for bankruptcy. You must make sure you know how much money you have spent and on what; you must know how much income your company has brought in over the past two years; you must know what accounts payable and receivable are still outstanding. In essence, you must be very careful to preserve all corporate records. If you do not, and a creditor or the Bankruptcy Court Trustee finds out, then you may not be entitled to a bankruptcy discharge.If a business owner fails to keep or preserve recorded information from which his financial condition and business transactions might be ascertained then the bankruptcy court may not grant the business or individual a discharge of his or her debt pursuant to 11 U.S.C. § 727(a)(3). More specifically, under the Bankruptcy Court law, if the debtor has concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records, and papers, from which the debtor’s financial condition or business transactions might be ascertained, unless such act or failure to act was justified under all of the circumstances of the case, then a discharge of debt shall be denied.
The rationale behind this rule is that the a Debtor must “give creditors and the bankruptcy court complete and accurate information concerning the status of the debtor’s affairs and to test the completeness of the disclosure requisite to a discharge” In re Martin, 554 F.2d 55, 57-58 (2d Cir.1977) This section of the code is in place to ensure that a creditor has the ability to determine if the debt owed to them was either entered into with intentional fraud or deceptive intent. �
With the foregoing stated, it is a very difficult thing for a creditor to stop a discharge for poor record keeping. The initial burden lies with the creditor to demonstrate that the debtor failed to keep and preserve any books or records from which the debtor’s financial condition or business transactions might be ascertained. White v. Schoenfeld, 117 F.2d 131, 132 (2d Cir.1941). If the creditor shows the absence of records, the burden falls upon the Debtor filing for bankruptcy to convince the court that the failure to produce certain records was justified. ID; see also In re Sandow, 151 F.2d 807, 809 (2d Cir. 1945) However, there is no specific case law that indicates what constitutes justification, but rather the court looks at reasonable person standard. Underhill, 82 F.2d at 259-60; see also Meridian Bank, 958 F.2d at 1231 (stating that “[t]he issue of justification depends largely on what a normal, reasonable person would do under similar circumstances”). It is a “loose test, concerned with the practical problems of what can be expected of the type of person and type of business involved.” Morris Plan Indus. Bank of N.Y. v. Dreher, 144 F.2d 60, 61 (2d Cir.1944).
As a result of this standard, it is highly advisable to make sure you keep back ups of your computer and paper records, and that you take steps to ensure that those records are in your possession should you ever need to produce them. This practice will certainly streamline your bankruptcy process.
As always, if you have any questions regarding this or any other business practice associated with the preparation for bankruptcy, you should contact a local bankruptcy attorney.
