LAW OFFICE OF SHAYE LARKIN 415/346-1799

RESTORING YOUR LIFE AND YOUR CREDIT AFTER BANKRUPTCY

COPYRIGHT 2010 BY SHAYE LARKIN

If you have not relied on credit cards in a long time, life after bankruptcy will not be much different than it was just before you filed your case, except for the fact that you no longer have those pesky payments to make and you can actually see the bottom of your mailbox when you open it. For others, living life without credit may require some adjustments. Particularly for self-employed persons, living without credit is a bit like walking on a tightrope without a net. It may take a year or two before you no longer feel vulnerable. What you need to do in the interim is SAVE YOUR MONEY as much as possible. Even if it's only $20 a month, save something EVERY MONTH. Gradually, you will have a savings which will act as your credit card in emergencies. If you use it, pay it back as soon as possible.

How Can You Save When You Have No Money??
If you have no income, saving is of course not possible for you presently. This opportunity will come for you down the road and you can revisit this article at that time. For those who do have some money, however little, SAVING IS POSSIBLE. It takes work and creativity, but you can do it; here are some suggestions:

  • Create a budget that limits discretionary spending and stick to it

  • Set financial goals. Commit to saving a certain amount every month, no matter what. Be sure your goal is realistic, but not too easily reachable, either.

  • Redefine what it takes to make you happy.

  • Discover the joys in thrift store shopping

  • Use coupons

  • Get rid of your car

  • Get rid of your cable

  • Rent DVDs and CDs at the library, where they are free

  • Grow your own vegetables

  • Bring your lunch to work instead of going out to eat

  • Make our own pizza

  • Quit paying for the gym and go for hikes and bike rides instead.

  • Go to museum on the monthly free days.

  • Take classes at the library

  • Make your own lattes

  • Do your own home maintenance

  • Get Skype for long distance phone calls

  • Buy generic

  • Go to matinees instead of evening movies

  • Take fewer trips to the store

  • Pay attention to how much things cost per unit (read the shelf tags at the store carefully)

  • Buy only what's on sale

  • Consolidate your student loans

  • Use free ATMs

  • Balance your checkbook regularly

  • Shop around for cheaper car insurance

  • Visit www.GasBuddy.com before buying gas to make sure you get the cheapest in your area

 With careful budgeting, you will be able to establish a savings in no time at all, even if you have never saved before. In time, you'll wonder how it was you ever came to be so dependent on credit cards.


What About Rebuilding My Credit?

For many folks, the last thing they want to do when they finish their bankruptcy is go out and get a new credit card. Debit cards make life without credit fairly easy – virtually all banks offer them as a convenience for checking account customers and they can be used to buy airline tickets, rent cars, and have all the dignity of a regular credit card. Eventually, however, most people will want to try rebuilding their credit. Once you receive your discharge, there is nothing stopping you from applying for new credit, but you will need to start small, just like you did in the beginning, when you first began building your credit history. Here are some suggestions.


Pull Your Credit Report and Check for Errors

Three months after you receive your bankruptcy discharge, visit www.AnnualCreditReport.com and request copies of your credit report from Transunion, Equifax and Experian. Go through each report carefully. For every debt that was discharged in your bankruptcy, there should be a notation which states “included in bankruptcy” or “discharged in bankruptcy”. If any creditors are continuing to report you as delinquent on your account, or if you see a debt that says “charged off” but does not say “discharged in bankruptcy” or “included in bankruptcy”, that means there is an error that needs to be corrected or your credit will continue to get worse over time. Fortunately, correcting credit report errors is quick and easy. After you have made note of the error(s) in each report, go to the main website for each credit reporting bureau, where you will see a link for reporting errors in your credit report. Follow the instructions on the website for reporting the error(s). You will need the copy of your credit report so you can provide the credit report number. When you are prompted to state the reason for the error, choose “this debt was included in my bankruptcy”. It will then ask you for the date your case was filed, and possibly your case number. Once you have completed reporting the error(s), you will should receive a confirming email stating the matter will be investigated. Once your bankruptcy filing and discharge have been confirmed by the credit reporting agency, the credit report will be corrected, normally within a week of you reporting the error.


It may also be helpful to put a one paragraph statement on your credit report explaining you credit history. You can mention your years of timely payments, and the event or events that caused your financial difficulty which were beyond your control, for example, illness, divorce, etc., and how you are now back on track. This statement will stay on your credit report until you remove it, and anyone who looks at your credit report will see it and can take it into consideration.


Secured Credit Cards

A secured credit card is a type of credit card that requires you to put down a security deposit, for example, $300, for which you are given a small line of credit, such as $250. These are very easy to get and can help you to build your credit if you use them carefully. The trick is to never use more than a third of the available credit, or you will actually hurt your credit. Don't pay it off and reuse it – keep a small balance going and make regular, minimum monthly payments to show a credit history. With each monthly payment, your credit score will improve. If you get more than one secured credit card, again – never using more than a third of the available credit and making regular monthly payments - your score will improve that much faster.

Unsecured Credit Cards

There are a few good companies out there who will give you an unsecured credit card with a small line of credit but be careful – shop around. A few companies who tout offers of credit cards to persons with less than perfect credit are actually offering you a card that will already have a balance on it when you receive it for a service fee they will have charged you in advance of you even using the card. This fee may cause the balance on the card to be larger than the available credit.


Automobile Loans

I strongly caution everyone about taking out a loan to buy a car. There is no bigger waste of money, in my opinion. As soon as you drive a car off a lot, it is worth far less than it was when it was just sitting there, waiting for a dreamy eyed customer to come along and take it home. Rest assured, once you receive your discharge there will be no shortage of car loan offers in your mail box. Somehow all the major car dealers know when you've received your discharge and are anxious to reel you in. Why would they want to loan someone just out of bankruptcy a huge sum of money to buy a new car? Two reasons: 1) after having been relieved of your debt, you are in the best position to begin making new payments; and 2) they can charge you a ridiculously high interest rate!! There are SO many alternatives to car ownership – most cities have great public transportation – there is also car pooling, City CarShare, and Zip Cars, just to name a few alternatives. If you must own a car, rather than taking out a car loan and paying interest, why not wait until you have saved up a couple thousand dollars and purchase a used car that will get you where you need to go? If you must drive long distances and therefore need a newer car that you lack funds to purchase on your own, consider sharing with a friend – a car partner who either already has a car you can use, or who is willing to pool their savings with yours to purchase a newer car together. A bit idealistic? People are doing it. Additionally, California has recently passed a law enabling folks to share their cars in car sharing services, and make money doing it, without violating their personal auto insurance policy.

Rebuilding your credit will take time. Until you have rebuilt your credit, you will be somewhat vulnerable in a few situations, such as in renting a new apartment. Here are a few suggestions for dealing with a potential landlord.


Renting an Apartment

It is true that many landlords will require a credit check before agreeing to rent an apartment to a potential tenant and may be deterred by a poor credit history. Your best chances may be with a private landlord, not a major apartment management company. If the landlord for an apartment you like is hesitant to rent to you because of your credit history, try negotiating with them. For example, you can offer a higher security deposit, or pay several months in advance, to give them added assurance that you will be able to make your future rental obligations. You can also have your current landlord, as well as former landlords write letters of recommendation for you which mention your history of timely rent payments.


Will My Bankruptcy Cause Me To Lose My Job?

Federal law prohibits discrimination against an employee - because they have filed bankruptcy. Chances are, your current employer will never know about your bankruptcy unless you owed them money and, as a result, had to include them in your bankruptcy among your other creditors. The bigger worry for most people these days is the credit check most employees have to go through as part of the hiring process for new employment. Federal laws provide protection against bankruptcy discrimination in these situations as well. Of course, discrimination can be hard to prove. Fortunately, however, many employers are more concerned about you not being distracted by burdensome debt when they do a credit check, and an employee who has been relieved of their debt in bankruptcy would certainly be preferable over one who was hopelessly distracted by their financial woes.


Opening a New Bank Account

If you have difficulty opening a bank account after bankruptcy it could be because you are in ChexSystems, which is a credit reporting agency for banks. If, when you filed your bankruptcy, you owed a bank money for an overdrawn checking account, or an over-the-limit credit card that was used as overdraft protection for your checking account, you will be “blacklisted” in their system and banks will not let you open a new account. Fax a copy of your bankruptcy discharge notice to ChexSystems at 602/659-2197. Include a cover letter demanding they remove you from their system as the debt owed was discharged in your bankruptcy. To be on the safe side, it would be best to call them first to make sure the fax number is still the same. Their telephone number is 800/428-9623. If you like, you can contact my office and we can do this for you. Once they receive your request, they will normally remove you from the system within a few days.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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