The popular myth is that filing bankruptcy ruins your credit. As experienced Chapter 13 Bankruptcy attorneys, we can tell you that’s normally not true. Most bankruptcy debtors have credit scores in the mid-500s. In many cases, that’s not much lower than their pre-bankruptcy scores. So, it is easier to rehabilitate your score than you might have thought. And, you do not need to wait until after the discharge to begin the rebuilding process.

As a side note, the benefits of bankruptcy far outweigh the drawbacks. Bankruptcy’s Automatic Stay halts adverse action, giving your family the breathing room it needs. Furthermore, Chapter 13’s protected repayment plan allows debtors to gradually erase secured debt delinquency, such as past-due mortgage payments, over a period of up to sixty months.

An experienced Athens bankruptcy lawyer helps families take full advantage of the benefits of bankruptcy and minimize the drawbacks as much as possible. If creditors try to take away your rights, an attorney stands up for you in court. Additionally, largely through a network of professional partnerships, an Athens bankruptcy attorney helps families quickly recover from bankruptcy to make the most of their fresh starts.

 

What to Do Before Attempting to Rebuild Credit While in Chapter 13 Bankruptcy

Before you attempt to rebuild credit while you’re still in bankruptcy, it’s important to note that you must get permission from the court to open any new lines of credit. After all, mismanaging money and getting behind on debts is what landed you in bankruptcy court in the first place.

To ease your attempt to request permission to apply for new credit or loans, it’s best to ensure you are current with all bankruptcy payments. Your loan can’t be to catch up on any delinquent bankruptcy payments.

If you enter into a consumer credit agreement without getting permission from the court, the court could decide to dismiss your Chapter 13 case. If that happens, you will have wasted time filing your case because you won’t accomplish any of the goals of filing bankruptcy.

There are some exceptions to the rule against applying for new credit. Courts might allow you to apply for new credit to show that it’s a unique circumstance or a genuine emergency.

A genuine emergency usually involves medical events or could be emergency steps to protect your home or property in the event of a storm or an accident. Typically, an emergency happens so that you can’t get prior approval, but you should notify the trustee as soon as possible of you taking the emergency credit.

Sometimes you could be granted permission to apply for new credit in special circumstances. For example, it is replacing an automobile after an accident or replacing a roof after storm damage. These are non-emergency instances that give you time to request prior approval, but they are necessary expenditures.

The trustee or the court will carefully consider your requests in light of a few factors. One factor is whether the repair or replacement is absolutely necessary before the end of your bankruptcy plan. Another consideration is how the amount of the new line of credit will affect your ability to pay your bankruptcy payments. The court will also consider whether you are attempting to apply for secured or unsecured credit.

Typically, the courts are not keen on approving requests to apply for credit if that credit will be secured against property already in the bankruptcy proceeding. However, sometimes, they will approve the request to apply for credit.

Consult with your Athens Bankruptcy Lawyers to determine whether you should attempt to request permission to apply for credit at this point in your bankruptcy journey.

 

Opening Two Secured Credit Cards and Athens Bankruptcy Lawyers

Fundamentally, your credit score measures your ability to manage credit responsibly. Negative information is just a measuring stick. So, the more positive credit information you have, the more your score improves. If that positive information is current information, that’s even better.

Frequently, a secured card improves credit scores by as much as fifty points. So, if you open two of these accounts, your credit score could rise from absolutely pitiful to below average almost overnight.

Secured credit cards are available exclusively to people with poor credit scores. Since the credit limit does not exceed the security deposit, there is often no credit check at least initially. Some card issuers do not work with people who are currently in bankruptcy. In these situations, an Athens bankruptcy attorney can either go to bat for you or refer you to a lender who has no such limitations.

Generally, after a few on-time payments, the card issuer may increase your credit limit. If that happens, your credit score could rise even more.

 

Open A Credit Builder Account

When you need to build your credit for any reason, you often look for a quick loan solution to help you. A credit builder loan helps you build credit, but it does it differently. You get your money at the end of the term instead of the beginning.

You may be wondering how getting the money at the end will help you. It’s not a solution to get you cash fast. It helps because the primary goal of this kind of loan is to build your credit.

How does a credit builder loan work? Step one is to choose the credit builder plan that is best suited to you. When you open the account, you will pay a non-refundable administration fee. The company then reports the open account to the credit bureaus.

A month after opening your account, you will begin to make payments on the “loan.” Each payment gets reported to all three credit bureaus. Your payment history is reported monthly until the loan becomes mature.

Approximately a year to two years after you open your account, you will complete your contractual obligation to pay on your credit builder. At that point, you will get the money you’ve paid into the account minus interest and fees.

If you’re wondering where the money goes while you’re paying on the credit builder account, it’s being held in a secure bank account or CD. Once you’ve made all your payments, you’re given access to the unlocked account or CD.

As you can see, a credit builder loan is a completely different way to begin rebuilding your credit after bankruptcy. Like a secured credit card, it’s a secured method of building credit. However, a credit-builder account is a very different method of rebuilding credit. A credit-builder account can be used in conjunction with a secured credit card to attempt to build credit faster.

Think of a credit-builder account as a stepping stone to rebuilding credit. All money you pay into the account becomes yours (minus fees and interest) at the end of the term, and your timely payments are reported to the credit bureaus, which will help raise your credit score.

The length of time needed to improve your credit score varies depending on your previous credit history and the score you began with. Some credit builder account holders see a change in their scores after the first report that’s made to the credit bureaus. Others don’t see a difference until they’ve made multiple payments into their account.

Like other loans, a credit-builder account can be paid off early and closed any time you are ready. The account will be reported as paid in full, and all previous activity will remain on your credit report. However, it’s best to remember that payment history is what helps determine your credit score, and when you pay your account early you decrease the number of reports to the credit bureau.

 

Locate Co-Signers

Most people have above-average or even excellent credit ratings from friends or family members. Do not ask these individuals to co-sign for a loan or credit card. The worst thing that can happen is that they will say “no.”

A few banks have rules against co-signers for loans. But most of them jump at the opportunity to lend money under such circumstances. The co-signer’s high credit score reduces risk, and your low credit score allows banks to charge higher interest rates. So, as far as they are concerned, it’s win-win.

To give jittery co-signers additional peace of mind, an Athens bankruptcy lawyer can draw up a brief agreement. The bank might not honor it if things go sideways, but there is a substantial placebo effect.

 

Dispute Current Accounts

Under the Fair Debt Collection Practices Act, you have the absolute right to contest items on your credit history report. That could be a dispute with the credit reporting agency or the creditor.

Credit reporting agencies must normally list items as “disputed.” That notation reduces the effect of negative information. Additionally, you have the right to demand that the creditor provide proof of the underlying debt. Many times, especially if the debt-buyer is a zombie debt buyer, such paperwork does not exist.

On a related note, frequently monitor your credit report, especially once the dust has settled from the bankruptcy filing. It is very encouraging to see your score improve every month. Monitoring also allows you to gauge the effectiveness of the credit above building methods. For example, some secured credit card accounts have a better effect than others. That’s mostly because some creditors add a “secured” notation to the account, and some do not.

 

Consult a Seasoned Chapter 13 Bankruptcy Lawyer Today

Taking some simple steps allows people to rebuild their credit ratings while they are in Chapter 13. For a free consultation with an experienced Athens bankruptcy attorney, contact Morgan & Morgan, Attorneys at Law, P.C. at (706) 843-2905. Convenient payment plans are available.

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