Credit Repair after Bankruptcy or Foreclosure

Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. You should know when you file for bankruptcy, every credit account that you include in bankruptcy filing will become an " included in bankruptcy " item. Also, a bankruptcy filing and bankruptcy discharge listing will appear in the court records section of your credit report. Because so many negative items are attached to bankruptcy filing, it is very difficult to remove all traces of the bad credit. Besides, with the new bankruptcy laws, many consumers are forced to pay back their debt through a five-year payment plan. For this reason, you should avoid bankruptcy whenever possible.

If you have had a house foreclosed on, or have declared bankruptcy, it will have a major effect on your ability to get new credit. A consumer reporting company can report information about a foreclosure for 7 years. A bankruptcy on the other hand can stay on your credit report up to 10 years, and can make it difficult to obtain credit or buy a home.

However, if you are in one of these situations and want to apply for a new loan, there are several things you can do.

For one thing , do not apply for a loan hoping the lender will not pull your credit report and not find out you filled for bankruptcy.

You might need to write a letter to the new lender explaining why the problem occurred. For example, perhaps you were seriously ill, recently divorced, or lost your job.

Another suggestion is to wait a few years before you apply for a new loan. The length of time you must wait will depend on the lender’s rules and the size of the loan for which you are applying.

During that time, make a strong effort to reduce your debt and pay your bills on time. Here are a few steps you can take to improve your credit history. When you apply for a loan again, make sure the lender knows the steps you have taken to improve your credit.

Filing for bankruptcy as a last resort is nothing to be ashamed of. It is a legal procedure that offers a fresh start for people who can’t satisfy their debts.

People who follow the bankruptcy rules receive a court ordered discharge that says they don’t have to repay certain debts. Don't look at it as a way out. The consequences of bankruptcy are significant and require careful consideration.

Changes to the Bankruptcy Laws

Effective October 2005, Congress made sweeping changes to the bankruptcy laws. The net effect of these changes is to give consumers more incentive to seek bankruptcy relief under Chapter 13 rather than Chapter 7. Chapter 13 allows you, if you have a steady income, to keep property, such as a mortgaged house or car, that you might otherwise lose. In Chapter 13, the court approves a repayment plan that allows you to use your future income to pay off your debts during a three-to-five-year period, rather than surrender any property. After you have made all the payments under the plan, you receive a discharge of your debts.

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