Going Bankrupt

Going bankrupt is very common these days, most everyone knows or has heard of someone who’s had the misfortune of filing bankruptcy. There is a long list of reasons for this, however the most prominent are loss of job, unexpected medical bills, becoming disabled and of course the housing market crash which inevitably left a great number of home owners with high interest rate loans they could no longer afford. Desperate times cause many people burdened by overwhelming debt to commit fraud while filing bankruptcy, by not reporting all assets or disclosing their true financial state.

Personal bankruptcy is a way for a citizen to legally find relief from debt, these are the rights that have been extended to all Americans by the Federal government. However within these laws also exist specific qualifications rules, which can not guarantee that all who are ridden with debt will be able to benefit from these bankruptcy laws. Causing some to get creative or seek advice from the wrong sources about how to get around the system and appear to be going bankrupt.

This of course has serious consequences, since almost always, the fraud will be detected and stopped before the case is dismissed.

Those who are legitimately going bankrupt have some options when dealing with their debts and debt collectors. Despite the benefits the filers gain from filing bankruptcy, they often remain wary of the effects that personal bankruptcy leaves on their records, which lasts from 7 to 10 years. During this time potential filers may not realize that bankruptcy is in fact a good option, so they may follow the wrong advice and opt for debt consolidation instead in order to avoid bankruptcy, this is not necessarily a good option in most cases.

Debt consolidation can make sense in some cases, if the debt is mostly unsecured, meaning mostly credit card debt, this typically makes you a good candidate for debt consolidation if you’re still able to make your payments on time. However debt consolidation is not a comparable option to filing bankruptcy. The benefits of filing bankruptcy far outweigh those of debt consolidation for a few reasons.

When you being to accumulate debt, not only unsecured debt, but secured loans, mortgage debt, personal debts etc. Your ability to pay all these debts suffers severely when you lose your job or your main source of income disappears. Even in situations like this you may be hear the advice of debt consolidation specialists that grouping all your bills into one is a good idea. It is not.

Going bankrupt means losing the ability to pay your creditors at all, not necessarily struggling to pay them each month. Both are good reasons to file bankruptcy, however neither is a good reason to simply opt for debt consolidation and the reason why is that under bankruptcy you have certain legal rights that no debt consolidation agency can extend to you. Such as the power of the automatic stay, which provides a shield of protection from creditors, meaning no one can harass you and try to collect from you while you’re in the process of discharging your debts.

Depending on which chapter you file, you may either fully discharge your debts or establish a repayment plan that allows you to repay your debts in a period of 3 to 5 years. In some cases your overall balances may be decreased or interest eliminated.

It’s not easy to accept that you’re going bankrupt but it needs to be clear to you that you have legal rights that can protect you from creditor harassment and if you can not make your payments anymore, then bankruptcy is something you need to consider. Start by contacting a lawyer in your area. Also remember that bankruptcy consultations should be free, so find a legal office that does not charge for this.

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Can I get a mortgage after bankruptcy?

Buying a home after bankruptcy

This is more of a myth than most people realize, the fact is that it is definitely possible to get a mortgage loan after bankruptcy. Sure, getting to a stage in which lenders will consider you again is still a bit tough, but generally the belief is that since personal bankruptcy stays on your record for up to 10 years you have to wait that long to get a mortgage loan or consumer credit again. It’s not that way at all. Credit after bankruptcy is possible when you take back control of your personal finances by implementing rigorous changes for repairing and bringing your credit to a healthy state again after bankruptcy.

Getting the necessary credit for buying a home after bankruptcy just requires you to know how. It’s true that filing bankruptcy deals a devastating blow on your personal credit, but the effects of bankruptcy can be overcome with an aggressive campaign on your part for rebuilding your credit properly and legally. When you apply for a mortgage after bankruptcy, you need to make sure your lender has in front of them a solid record of consecutive positive entries in your credit report. This should include a reference from your current landlord and rental receipts that prove that you made your monthly rent payments on time for at least a year.

Cleaning up your credit report after bankruptcy

This is not an invitation to hire a credit repair agency and attempt to delete your bankruptcy record from your credit report. Remember that you only have the right to dispute true inaccuracies in your credit report, if all else is accurate disputing them with the help of an agency may prove expensive and ultimately useless.

If you really want to qualify for a mortgage loan after bankruptcy, it’s imperative that you clean up your credit report. Meaning that you need to get copies of your credit report from the three credit bureaus and study them side by side making sure that accounts that were discharged in bankruptcy are not still labeled “defaulted” “open” or “overdue”, even if your creditors are not collecting from you, these are the red flags that will keep you from getting a mortgage loan. If this is the case for you, start by using the dispute systems from the three credit bureaus. You should also have copies of your personal bankruptcy discharge papers ready to send to the bureaus if they require them.

Another good way to being ranging high enough for a mortgage after filing bankruptcy is to get a bankruptcy credit card or a secured credit card. You’re going to need two types of payment history to successfully rebuild your credit and they are “installment credit” and “revolving credit”. When you show installment accounts in your credit history these will include current mortgage loans, auto loans, student loans etc. Revolving credit is typically unsecured credit, however qualifying for unsecured credit after bankruptcy is a bit tough, so a secured credit can be a great option. With a secured credit card you will only be able to spend up to the credit limit set by the amount you deposit in the credit card account. So it’s a prepaid credit card basically and it may seem like a burden to send money to a credit card company so you can spend it later, but it’s an important step in qualifying for a mortgage loan again after filing bankruptcy.

Other tips for getting a mortgage loan after bankruptcy

As mentioned above, you would want to show installment accounts on your credit report, this will server as a great reference and increase your chances of becoming a better prospect to mortgage lenders. However, car payments and the interest rates attached to car loans are typically high if you’ve been bankrupt. You have to realize that in order to qualify a mortgage after bankruptcy, your debt to income ratio will be the deciding factor. The lender has to make sure that you have the needed income to make your monthly mortgage payments again and then some. So resist the urge to buy a new car and ignore the recommendations from auto loan companies that this is a good way to rebuild your credit. It is only if you have enough income to cover a mortgage loan after the fact, that you should consider financing an auto purchase.

Pay your monthly bills on time. You can not afford any more glitches or blemishes on your credit report. Being able to get credit after bankruptcy is all about continuous positive entries in your credit report and nothing else. This applies not only to your consumer debt accounts but your rent, utilities, and any other obligations you have. Mortgage lenders will be more inclined to dig a little deeper if you have filed bankruptcy and are trying to qualify for a mortgage again, so show a good trail of positive credit entries and life after bankruptcy will simply get easier as you begin to regain the trust of lenders again.

If you have been paying your bills on time and are ready to apply for a mortgage loan again, another reference that can give you some leverage in qualifying for that loan is to have a letter of credit from the non-traditional credit companies such as your utilities companies, hence the reason why you must always make these payments on time as well. You can include your cell phone company, your electrical and cable companies, it’s as simple as contacting them for a letter of credit and as long as you have a positive record with them, it should not be a problem.

Finally, you may also be required to give a larger down payment on your new home before you can qualify for the mortgage loan, this can be an obstacle if you don’t have 20 to 30 thousand worth of liquidity to finance your purchase. You may be give the advice to borrow the money from you 401k, IRA or other retirement account, which is not uncommon for buyers who want a mortgage loan after bankruptcy, but it’s a decision that you should consider carefully, since you may have to pay back the money you borrow from your retirement account, otherwise you’d have to cash it all out and pay the tax and penalties as well.

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Your credit report and bankruptcy

Your credit report, get it while it’s hot!

As you already know, your credit report is everything these days and you can’t do much without it. Once you file for bankruptcy, your credit rating goes out the window. This of course makes it very difficult for you to get credit again, apply for loans, rent property etc. One thing you can do prior to filing your bankruptcy petition is to get a copy of your credit report from the three credit bureaus while it’s still in good standing.

You’ll find quickly that after bankruptcy things get more complicated, but there will be times when you might encounter a company or someone who may be willing to work with you despite your current credit score. When someone is considering approving you but needs some convincing, your previous credit history could be the key to closing the deal. Of course this is not going to apply to everyone, since some people have bad credit all their lives and most creditors will simply not care how good your credit was before you filed. So these are special circumstances in which it’s important that you actually had good credit with a good score prior to filing bankruptcy, it can give you some leverage in certain negotiations.

With the current state of the mortgage market and the number of foreclosures and bankruptcy cases around the country, many people are losing their homes and in some cases voluntarily surrendering their homes to their lenders after filing bankruptcy chapter 7. Whether you willingly surrender your property or it is foreclosed by your lender, you’re going to need to live somewhere, and having a copy of your credit report prior to filing could make a difference.

Another thing to keep in mind when you go looking for a place after you leave your home is to try and stick to places that are being rented by individual owners. Apartment complexes are going to have management companies who often require the typical procedures for renting, which are a credit check, references, rent history and a long application and normally frown when they see consumer bankruptcy entries on credit reports.

Renting from a property owner who manages their own property could be a better option since they’re usually more motivated to keep their places rented. Just be honest about your bad credit and bankruptcy case when you approach them. You may find that they can be more understanding and sympathetic than a management company. Often these real estate investors will hire management companies to do this for them. These are usually smaller companies that work hard to keep a high level of occupancy and can be very flexible, you just need to ask.

If you don’t have much choice when you start looking for a place, and decide to stick to the apartment complex settings, look for places that show move-in specials like 1st month free, or 1/2 month rent for 2 months etc. These incentives are a sign that these properties have more vacancies than they’d like, so when you apply they may be willing to overlook your bad credit and bankruptcy record, and once again if you can prove to them that prior to filing bankruptcy or your foreclosure your credit was good, it’ll give them more confidence in renting to you.

Obviously once you get approved you don’t want to mess it all up by being late or missing payments. This will work against you in so many ways, since now you’re in fact working towards rebuilding your credit, so getting positive entries and good referrals are the things that you should be striving for. The last tip for making your new landlord happy is to offer to pay them rent via direct deposit, this can really increase your chances of getting approved and of course you’re creating a great referral.

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Are you considering bankruptcy?

Personal bankruptcy cases are on the rise. Hundreds of thousands of Americans declared bankruptcy in 2007 and the rate of filing has not slowed down in 2008. A tough economic state and lack of stable employment and job security are only part of the reason. Personal spending habits have certainly contributed to record levels of credit card debt and the current housing market has left many with high balance loans and depreciating values in many parts of the country.

Filing for personal bankruptcy is a tough decision and whatever the circumstances may be for you, it’s important that you educate yourself as much as you can and carefully assess your own financial situation before you proceed with filing bankruptcy. There are several types of bankruptcy that cover not only individuals but small and large businesses and of course special codes for corporations. Chapter 7 and Chapter 13 are the two types of personal bankruptcy and the most commonly filed, Chapter 11 is similar to chapter 13 though this is what an LLC, partnership or corporation would want to file.

This is a quick explanation of what filing bankruptcy is all about, what it does and the effects it can have on your financial future. Please check out the links above for detailed explanations on bankruptcy chapter 7, chapter 13 and chapter 11.

Please take note that none of content here is meant as legal advice nor is it intended to encourage anyone to file for bankruptcy. This option should be a last resort, there are alternatives to bankruptcy that you should consider before filing.

What is bankruptcy?

Bankruptcy is a legal proceeding in which people, companies or corporate entities who can no longer afford to pay their creditors, can get protection through a court order called “The Order of Relief”. Bankruptcy offers a fresh financial start and these benefits are afforded to all by federal law, therefore all bankruptcy cases are handled in federal courts. Bankruptcy puts into effect the order of relief also known as the automatic stay which stops your creditors from attempting to collect payments from you, that is until your debts are sorted out through court proceedings. The automatic stay is further explained in the Chapter 7 page.

During the process of filing bankruptcy you will need to provide specific documentation such as past tax returns, proof of income, a breakdown of all your debts, all property and assets you own, etc. It is possible to file your bankruptcy case alone but the paperwork is complicated and can be confusing. Hiring a law firm that specializes in personal bankruptcy cases is usually the best thing to do. These services aren’t always cheap though, and if you’re struggling to pay your creditors you may have trouble paying the fees for these services, which often need to be paid up front. So it’s important you prepare in advance and allocate some funds early on when you begin to consider filing bankruptcy.

There are a few chapters in the US bankruptcy code. Chapters 7, 9, 11, 12, 13, and 15. You will get a detailed explanation of chapters 7, chapter 11 and chapter 13 on this site since they are the most common forms for individuals, partnerships and small businesses. It’s easier for a bankruptcy attorney to determine which bankruptcy chapter you qualify to file, however by learning about what each chapter does and how they work you will get a good idea for which one will fit you best. Here’s some of the information you’ll need to provide before you file:

What happens after bankruptcy?

Neither one of these chapters will make it easier on your credit once you get a bankruptcy discharge. The difficulties after bankruptcy obtaining credit, renting a place to live, and qualifying for certain jobs will be the same. Unfortunately the fresh financial start can be hard to embrace when you file bankruptcy since it takes time to rebuild you financial life again. The hardships can continue if you’re not prepared to deal with what comes after. Normally after bankruptcy, most credit providers will not want to deal with you. The ones who will, can impose high interest rates and/or high security deposits because of your recent bankruptcy case.

When you file you will be required to take bankruptcy counseling courses, also known as credit counseling, from an agency approved by the US Trustee . You can find a list of approved agencies at this link: US Trustee Approved Credit Counseling Agencies. The costs are usually moderate, $20 to $30 dollars should be a good range to stick to. You will need to take the first part of this personal bankruptcy training before filing and then the second part before you get discharged.

Consider your case carefully and don’t forget that there are alternatives that depending on your situation may be a better option than filing bankruptcy.

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