10 Ways to Rebuild Your Credit During a Chapter 13 Bankruptcy Process

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Most people believe it takes years to recover your credit after filing for bankruptcy. While rebuilding a decent credit score may take a few years, most people can qualify for a low-balance credit card within months of filing for bankruptcy. If you can keep up with your monthly bills, rent, or mortgage payments, you should be able to qualify for a credit line. If you use the card correctly and pay off charges on time, your credit score will rise, making you eligible for loans and more significant credit card limits.

Filing for chapter 13 bankruptcy may appear frightening, but it is typically the best option for those facing foreclosure, repossession, or massive obligations. You can get out of your unsecured debts with the help of a professional debt relief option. This way you can avoid bankruptcy.

If you’re considering filing for Chapter 13 bankruptcy, you might be wondering how it will affect your credit score. Understand how chapter 13 bankruptcy impacts your credit score and how long bankruptcy will be on your credit report. We give vital ideas for rebuilding credit after filing for bankruptcy.

Your Credit After Filing for Chapter 13 Bankruptcy

Different factors influence how chapter 13 bankruptcy affects your credit. Filing will undoubtedly lower your credit score if you have a decent credit score.

If you have a low credit score or none, filing for bankruptcy can help you improve it.

How Long Will a Chapter 13 Bankruptcy Remain on Your Credit Report?

When you file for Chapter 13, your credit report will be blocked for seven years. The three credit reporting agencies — TransUnion, Experian, and Equifax — will remove it from your account after seven years. Fortunately, the seven-year period includes the time you pay your chapter 13 repayment plan, so if you’re on a five-year payment plan, your bankruptcy will only be on your credit report for an extra two years after you finish your program.

Why is it important to rebuild credit after filing for bankruptcy?

Chapter 13 bankruptcy is a reorganization of personal debt that allows you to pay a percentage of what you owe for three or five years. As a result, most people who file for Chapter 13 can keep their homes and vehicles. You should be able to recover your credit quite fast if you make consistent monthly payments. You should be able to apply for small loans or low-balance credit cards if creditors notice that you have adhered to your repayment schedule. For a few years, if you handle your finances appropriately, you should be able to rebuild your credit score.

Is It Possible to Pay Off a Chapter 13 Bankruptcy Earlier?

You can pay ahead or even pay off a Chapter 13 plan at any time, but this may not necessarily result in an immediate discharge and the trustee or the holder of an unsecured claim seeking an unfavorable plan change. You should address this with your lawyer so that the risks and rewards may be assessed.

Is It Possible For You To Get A Secured Credit Card While In Chapter 13?

Even if you’ve filed for chapter 7 or 13, you can receive a secured credit card anytime. However, your chances of being approved are slim. Check your credit report for errors and dispute them to help you rebuild your credit.

Is It Possible For You To Get An Unsecured Credit Card While In Chapter 13?

Even if you’ve filed for chapter 7 or 13, you can receive an unsecured credit card anytime. However, your chances of being approved are slim. Check your credit report for errors and dispute them to help you rebuild your credit.

How to rebuild credit after filing for chapter 13 bankruptcy

When you file for chapter 13 bankruptcy, you can immediately begin restoring your credit report to good standing. When filing for bankruptcy, you can rebuild your credit in a variety of methods, including:

1. Make a New Credit Application

Using credit to re-establish a solid credit rating is necessary. Because of your bankruptcy, your credit interest rates and costs may be higher, but it’s critical to keep increasing your credit score by opening new lines of credit. Opening additional lines of credit and making on-time payments demonstrates to the credit bureaus that you are responsible with credit, and your score will rise as a result. It’s crucial to keep in mind that asking for new credit lines frequently results in hard inquiries into your credit report. Multiple complicated queries into your credit over a short period can negatively impact your credit score. Consider applying for a secured credit card if you think several companies turn you down. Because a secured credit card requires you to pay a security deposit, it’s easy for people with bad credit to get one.

2. Consult with your attorney

Some countries allow a Chapter 13 debtor to take out a loan or line of credit for a specific amount without first seeking permission from the court. To receive a loan for more than that, you must need a court order before getting approved for further debt. So, talk to an attorney for advice.

3. Become an Authorized User or Add a Cosigner

Consider adding a cosigner to your credit application if you’re having trouble getting approved for credit. It will considerably increase your chances of being approved, allowing you to begin boosting your credit score. You can also add yourself as an authorized user on someone else’s credit card. Credit card payments will appear on your credit record once you become an authorized user. Your credit score will rise if you make regular, on-time payments.

4. Keep up with the latest credit card payments.

Although opening new lines of credit will increase your credit score, you must keep up with your payments. Your credit will suffer if you do not make all your payments on schedule. Consider the following options to remain on top of your credit payments:

  • Make a note on your calendar to remind yourself to pay your bills.
  • Enroll in autopay for all of your monthly payments.
  • Paying off your credit cards more than once a month rather than allowing the balance to grow.
  • Organize your finances so you can pay off your credit cards monthly.

5. Reduce the amount of credit you’re using.

Maintaining your credit utilization rate low is critical when applying for new lines of credit. An ideal credit use rate is less than 30%; thus, if you have $10,000 in credit available, you should use less than $3,000 at any given moment to have an excellent credit utilization rate. A low credit utilization rate indicates to lenders and credit bureaus that you are more likely to make timely payments, which improves your credit scores.

6. Dispute negative listings

You have the right to dispute negative items on your credit report under the Fair Debt Collection Practices Act.

A dispute with the credit reporting agency or the creditor could be the cause. Usually, credit reporting companies must mark items as “disputed.”

This notation reduces the influence of negative information. Furthermore, you have the right to demand verification of the underlying debt from the creditor.

Such paperwork is frequently missing, especially if the debt buyer is a zombie debt buyer. On a related point, keep an eye on your credit record, especially after the bankruptcy has been finalized. It’s reassuring to see your score rise month after month. Monitoring also allows you to assess the program’s effectiveness.

7. Keep an eye on your credit score

Bankruptcy will almost certainly result in a 100 to 200-point decline in your credit score, while this fluctuates and the consequences improve over time. Checking your credit score every month is essential to rebuilding your credit after bankruptcy. Create an account with a free online service; numerous credit card issuers also provide free score updates to their users. Check your score when your accounts are discharged throughout the bankruptcy process to ensure that these adjustments were appropriately reported.

8. Pay on schedule and in a consistent manner

Because your payment history contributes to 35% of your FICO Score, it’s critical to make on-time payments when repairing credit after bankruptcy.

Stay on top of other bills, such as utilities, and make consistent, on-time payments because these can help you enhance your credit score through programs like Experian Boost.

9. Reduce the amount of money you spend on credit cards.

Depending on how you got into bankruptcy, one of the most significant hazards is relapsing back into the same destructive behaviors that got you into difficulty in the first place. Using your credit card less frequently—or not—can help you resist the urge to overspend and lessen the chances of this happening.

10. Maintain a fair credit balance.

The amount you owe accounts for 30% of your FICO score computation.

As a result, maintaining a low credit debt is critical to re-establishing credit following bankruptcy. To do so, strive to limit your credit card usage and pay off your bills every month. If possible, save aside money to develop an emergency savings account so that you’re prepared for unforeseen needs such as auto repairs and medical bills. This can help you avoid future debt, which can deter or even reverse your credit-rebuilding efforts.


Takeaway

In the end, patience is required. The time it takes to restore your credit after bankruptcy varies from borrower to borrower, but it might take anywhere from two months to two years. As a result, it’s critical to develop and maintain healthy credit practices, even after your score has improved. You can professionally remove your bankruptcy. In such circumstances, consult a credit repair professional to review your credit report. Allowing professionals to determine the reasons behind your score decline saves you time, effort, and money.


AUTHOR BIO:
Lyle Solomon has extensive legal experience as well as in-depth knowledge and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998, and currently works for the Oak View Law Group in California as a principal attorney.

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