What Can I Do After a Bankruptcy?
A personal or business bankruptcy is not the end of your credit world. There are some specific things you can do to repair your credit after a you have experienced a Chapter 7 or Chapter 13 personal bankruptcy or a Chapter 11 business bankruptcy.
The difference between a Chapter 7 and a Chapter 13 is whether the Bankruptcy Court discharged all of your declared debt in the bankruptcy proceedings (a Chapter 7) or whether they created a schedule of partial repayment of your debt (a Chapter 13) and there- fore discharged the BK after the repayment.
First of all, in a Chapter 13 your record of debt repayment with the Bankruptcy Court becomes a powerful, documented item of your credit history. Make sure you pay the Court right on time and even, if possible, pay off the Chapter 13 early. This will be viewed as a very positive step in the right direction.
What can I do to rebuild my credit?
Here are some suggestions that have proven to be quite successful:
- Always, always, always make your payments on time after you have experienced a bankruptcy. Any late payments are viewed by an underwriter much more harshly because of your past experience.
- Dont back off obtaining more credit. Do the opposite. Gradually rebuild your credit history. In a previous article I have outlined five steps for building credit accounts. These will work for you as well.
- A paper lenders like FNMA want a minimum of two years and ideally four years before you apply for a home loan with them. However, your history since the BK is your most important argument stating that you have changed and are fully ready to buy a home.
- B paper lenders will view your history with much more flexibility. The reason is simple they charge a higher interest rate. But, getting back into home ownership or into home ownership for the first time is probably a primary goal. So obtaining a B paper loan for a couple years is often a very good idea. It also helps build your credibility in the credit world.
Do not despair!
As I said, a bankruptcy is not the end of the world. Many very successful people have gone through it to establish themselves with very high credit scores. In addition, a bankruptcy completely drops off your credit report in ten years and after just four, five, six years it has less and less impact on your credit score. You just may need to explain what happened to your next lender.
So, come back into the game of home ownership for your family a little wiser and a lot more astute about your finances. Good luck!
Peter M. Galde is the founder and principal at Cornerstone Capital Funding, 14520 Mono Way, Suite 110, Sonora Ca. 95370. Peter has 28 years experience in the finance industry. E mail Peter or call him on 209 532 7711 for further information.
