nce you complete your bankruptcy statement and everything is said and done, it’s time to start rebuilding. One of the first places he starts is his credit.
Let’s be honest: it is almost impossible to go through bankruptcy with your credit intact. Even if you somehow managed to keep up with all your payments, avoid accounts in collections, and never overdraw an account (why did you file?) – even then, you would still face an extremely harsh penalty of 7-10 years only for bankruptcy.
Facts: While Chapter 13 bankruptcy has a 7-year penalty, a Chapter 7 bankruptcy has a harder penalty of 10 years.
Then, once you complete your bankruptcy, you need to start rebuilding. Credit repair is the first step in that process. Here are five things you need to know about how to repair your credit once your debts have been canceled.
Tip # 1: Know when your penalty clock started
Seven to ten years is a long time. The last thing you need is for the penalty to be maintained for a longer time. By law, a bankruptcy remains on your credit report for a certain number of years, from the date of its filing.
This is good news, because the clock has probably already been working for a while before it is ready to start building. A payment plan for a Chapter 13 bankruptcy can take 3-5 years. So, if you submitted 5 years ago and you are ready to rebuild your credit, in reality you only have about 2 years left with the penalty.
Tip No. 2: Carefully check the status of your account
Each account in your credit report has an associated account statement. Once your bankruptcy is completed, each account included in your presentation should read “discharged” or “included in bankruptcy.”
If you see something else in the account status field for any account, then it is probably an error and should be
corrected . This includes states such as “active”, “updated”, “delinquent” or “canceled”.
Tip # 3: Make sure all balances are zero
Another line that you will want to see in each account is the current account balance. Even if the status is correct, an account may still have a balance on the list that says it is owed. After the bankruptcy discharge, each account must include a zero balance. If you show a balance, have them correct the error.
Also, make sure that the creditor or lender has not moved your balance to another account or opened a new account with the money you still owe, in an attempt to collect. In exceptional cases, creditors will convert or update an account to avoid bankruptcy.
Tip #. 4: Monitor any account in collections
Collection accounts are usually common in your credit reports, if you have had financial problems. In most cases, a paid collection account will remain on your credit report as of seven years from the date of the final payment. However, in some cases, arrangements can be made with the collector to have the account removed from your credit report once the agreed payment has been made.
If before or during your bankruptcy an agreement was reached to eliminate an account in collection, once the payment has been made, make sure that the account is eliminated. If you are lucky, have a promise to eliminate the account in writing, you can send it along with your dispute when it takes care of correcting your credit.
Tip # 5: Evaluate what you are losing
When you complete your bankruptcy, it will eliminate a lot of bad debts from your credit history but you can also erase some good things. Because of the way in which credit scores are calculated, having certain types of accounts and a specific number of accounts is important for your credit score.
Therefore, you should know how some things that can happen during bankruptcy could lower your credit score. When reviewing your reports, make sure you do not have any of the following situations:
Less than two credit card accounts left open after bankruptcy
An open mortgage in good condition
An open credit card account in good condition that uses a high level of available credit line
All these things provide “bonus points” on your credit score. If all of your credit card accounts are closed and you lose your home, you may experience an additional decrease in your credit score above the bankruptcy penalty. Also, do not delete your oldest closed accounts from your credit reports simply because it says “included in bankruptcy”. The seniority of your credit history is a determining factor in your credit score, so deleting your oldest account decreases the length of your credit history, and therefore, can reduce your credit score.
Finally, be careful about applying too many lines of credit in a period of six months. The number of credit requests you make in six months also has a negative impact on your credit score. Only require one line of credit at a time, and be sure to manage the debt before requesting another credit card or loan.