The idea of bankruptcy protection is precisely to help you get back on your feet and start fresh without the burden of crushing debt. That also means to fulfill your dream of your home.

After your debts have been discharged following your bankruptcy filing, the bankruptcy does not legally prohibit you from buying a home. The barriers to home ownership can be a consequence of your credit rating rather than the mere fact that you have filed for bankruptcy. But even these barriers are surmountable. A typical time frame ranges from 18 to 24 months, but it really depends on your situation. A former creditor or bankruptcy trustee representing your former creditors cannot claim your property after you have successfully bankruptcy filing and discharge.

Build Credit

A bankruptcy filing can stay in your credit report for up to 10 years. But just two years post bankruptcy, your credit score is no longer adversely affected by the bankruptcy filing. Therefore it is really important to build that credit. Be responsible and pay your bills on time. Do not overspend and keep your available credit small so you will not be tempted to overuse credit. You will need good credit to get favorable interest rates for any type of loan, but especially a mortgage. Lenders will look at your spending behavior to determine your creditworthiness and their risk. The lower your credit score, the higher your interest rate will be.

What can you afford?

Make a realistic assessment of what you will be able to comfortably afford. Consider all costs associated with owning a home, not just the mortgage. Condo fees, maintenance costs and property taxes are just a few of those monthly costs which need to be considered in the overall calculation. Also consider what would happen if you or a spouse became unemployed. Choosing a home that is below your means may help you avoid foreclosure or another bankruptcy in the future in case you have unexpected financial problems.

Save for a down payment

A large down payment will yield more favorable interest rates, so it definitely pays to wait until your down payment amount is substantial. Lenders are not only interested in your down payment, but also in the stability of your income and a payment history that assures them you will and afford to make your monthly mortgage payments.

Be aware of suspicious lenders

The mortgage lending industry is very competitive. Do not blindly trust lenders who target people with less than perfect credit. Do your homework and read the fine print. Understand all the hidden costs such as loan fees, escrows for taxes, insurance costs and particularly closing costs which can be expensive. Shop around and compare prices and costs.

Filing for bankruptcy can be one of the most difficult decisions you ever have to make. But you made a sound decision and yes, there is life after bankruptcy. Hopefully, you have learned from your mistakes and can now move on, starting with a blank slate and a chance to rebuild your credit score without falling back into your bad old spending habits. The bankruptcy filing will stay in your credit report for up to ten years and it is up to you to restore it back to what it used to be.

Show restraint

Do not succumb to credit card offers that try to lure you with promotional low or no interest rates. They are part of the problem. Limit yourself to one credit card with a smaller limit of no more than $2000. Be sure that only you have access to it and only use it in emergencies for unexpected big ticket items such as car repairs or urgent home repairs.

Make a budget

Make a monthly budget of what you need and can comfortably afford. If you have a mortgage, student loans and other fixed monthly expenses, calculate how much discretionary spending you will have after making these payments each month. Then make a budget of how much you will need for essentials such as food and household expenses. Set aside a certain amount to deposit into a savings account, even if it is only a small amount. It is a good habit to start. If you find that you are in the red numbers again once you paid all your bills, you will need to downsize to cut costs and afford your life.

Trim the fat

As one of the biggest expenses, the first place to look for downsizing is your mortgage or rent. Maybe your mortgage payments are not within your financial means. If this is the case, consider downsizing to a more affordable home. Smaller mortgage payments make a very big difference in your monthly budget. The other big expense that makes a difference is your car. If you need a car, look at smaller cars with good mileage to reduce your monthly gas bills. Try to save enough money for a 10-20% down payment of the purchase price of the car to lower the interest rate and increase your chances of getting the loan. Also consider dispensing with some tempting, costly but not necessary extras that can add substantially to the cost of a new car. Once you can cut these major costs, you will have more cash available for discretionary spending.

Build your credit

Before you apply for credit again, be sure to save enough for a sizable down payment whether it is for a smaller home or new car. Use your credit card sparingly and deliberately. But most important of all, pay all your bills on time, and in full each month.

Having used credit cards beyond your financial means is most likely what has brought you to consider filing bankruptcy in the first place. The irony of course lies in the fact that you have already entered the vicious cycle of going deeper and deeper into debt to a point where you depend on your credit card for survival and may be forced into bankruptcy as a result. When filing for bankruptcy, a judge may not look favorably upon the excessive use of credit cards, despite the fact that frequent use was not a choice but a necessity.

Not all credit card use is equal

The bankruptcy code section 523 addresses the fact that you had no other option than to charge your credit card for essential goods. This code differentiates between essential and non-essential goods. If you charged non-essential, or “luxury goods” in the amount of $500 or more to your credit card within 90 days prior to filing for bankruptcy, these charges are presumed non-dischargeable. If you purchased these non-essential items within 90 days prior to filing, it would be extremely difficult to defend them, so creditors’ arguments will most likely prevail.

Acting in good faith

Whether you have acted in good faith is a much more difficult argument to make for the creditor. So credit card debts of any amount, incurred at any time prior to filing may be deemed non-dischargeable if the creditor can prove that the debt was incurred under false pretenses. Unless there is hard evidence of fraudulent behavior, the creditor may have a tough time making a convincing argument to prove that you willfully spent money, knowing you will file bankruptcy in the future. If you end up in an argument between your word against the creditor’s word and the creditor files an objection, consider the legal costs of responding and defending such an objection before you are too deep into it.

Credit card as last resort

It is good practice to delay filing for bankruptcy as long as possible following your last use of credit cards. This is the best evidence of acting in good faith. Also be diligent with your outstanding payments, even if you can only make minimum payments. If you see no other option than to use your credit cards for everyday life’s expenses, you know you are heading for bankruptcy and it would be a good idea to contact a bankruptcy lawyer. Once you have taken that step, think twice about using your credit card beyond this point.

If your financial situation has spun out of control, before considering filing for bankruptcy, make a realistic assessment of the amount of debt you have, then consider negotiating a payment plan with your creditors instead. A creditor may be amenable to such a proposition, granted you have already fallen behind your credit card payments. Rarely will creditors negotiate with debtors who are not in or near collections.

Don’t avoid the collector’s call

When collectors call you, don’t be intimidated or defensive. Use the call as an opportunity to actually speak to them and explain your situation. Assure the collector that you intend to pay your bills but have difficulties doing so and would like to speak to a supervisor. A supervisor is more likely to have the authority to negotiate a debt settlement. The credit card company is more likely to accept payment of a lesser amount than what you owe than the risk of you filing for bankruptcy or having to charge off the account.

Be proactive

If the creditor prefers to communicate in writing, pick up the phone and call the credit card company to speak to a person, then ask for the supervisor. Before you make the call, be sure to thoroughly evaluate your debt before hand and come up with a realistic plan of how long it will take you to pay off your debt at a reduced amount. When you talk to the credit card company they will see that you are prepared and serious about paying your debt. They will be more likely to reach out to you.

Negotiate a deal

Do your homework before striking a deal. Run a few calculations comparing a one-time cash settlement of less than the amount owed with a payment plan. Consider the different payment plan options of either a reduced interest rate, or elimination of penalties and fees or also a reduced amount.

Get it in writing

After you successfully negotiated a settlement, be sure to request a written letter of the settlement agreement from the credit card company. Do not make any payments until you receive this document. Review the settlement agreement and ensure that it clearly outlines the terms you agreed on. If it does not agree with your discussion, dispute it in writing. Send all of your correspondence by registered mail.

Document everything

When everything is a done deal, send the money as you agreed on. Again, be sure to keep copies of everything, especially proof of payments.

If you get sued by a creditor, you will receive a summons to appear in court and a date for when the hearing will take place. It is really important to appear in court for this hearing or the creditor will get a default judgment. Your appearance in court may have the judge look favorably on you instead of granting the creditor’s requested amount. There is a greater likelihood for the creditor to work out a repayment plan with you if you attend the hearing or contact them before the hearing.

However, if you can’t work it out and don’t appear, the creditor will get a default judgment. Inability to meet a debt obligation does not exempt you from not paying.

The company has a right to go after easily liquidated assets such as stocks, CD’s or pension funds, although that may differ from state to state. A lien can be placed against any real estate making it impossible for you to sell your home until the judgment is paid. Quite often, companies use wage garnishment proceedings. A creditor can attempt to garnish your wages to pay off the judgment amount. Your employer is served an order to withhold a certain percentage of your pay, generally limited to 25% of gross wages. If you are self-employed, this method would be difficult to enforce.

A bank account levy can also be used for collection. The creditor can find your bank and put a bank levy on your bank account. Unlike a wage levy you will not receive a prior notice until after the levy has been imposed to prevent you from withdrawing your funds from the account. Unlike a wage garnishment, which is ongoing until the debt is paid off, a bank account levy is a one time move to take the current amount at the time of the levy. Each subsequent levy requires a separate order.

If you are facing any of these scenarios, bankruptcy can help by stopping the garnishments, reversing recent levies, and removing existing judgment liens against your property. In either case, having a judgment against you is a complicated legal matter and should be only approached with a good attorney.

Filing for bankruptcy can help you start with a clean slate. It is a good way to bring your financial life in order while rebuilding your credit.
But building your credit with a bankruptcy filing in your credit report can also be a very lengthy process.

Although you can start restoring your credit rating immediately after having filed for bankruptcy by paying your bills on time and using your credit responsibly, bankruptcy filing can stay in your report for up to ten years, making it a slow process to achieve high digits for your three digit credit rating again. A low credit rating will prevent you from getting favorable interest rates for credit cards, auto loans or a mortgage if you qualify for a loan at all. Higher interest rates in turn may overextend your ability to pay and therefore put you at a higher risk for bankruptcy filing.

Entering this vicious cycle can easily be avoided by using the bankruptcy filing to straighten out your finances and spend within your means to avoid subsequent bankruptcy filings. Making a budget and learning to live with it will prevent you from defaulting on your debt, allowing you to build your credit rating for a sound financial future.

Bankruptcy not right for you? Get a free debt settlement review if you have over $10,000 in debt. One of our debt specialists will review your case.

If you are thinking about filing bankruptcy, you probably already have a few dings on your credit report, and are wondering how much more bankruptcy can lower your credit score. Your overall credit score is based on your income to debt ratio, how long you’ve had a credit history, how often you pay late, how many times you apply for credit and other factors.

Your credit score is important not only for gaining additional credit such as a mortgage or car loan, but for employment, insurance, utilities and other daily life needs. Knowing your credit score and how it will be affected is important unless you are independently wealthy and don’t need credit at all. So let’s see how some common financial mistakes will affect your credit score.

Judgments – Judgments are basically lawsuits that creditors have brought against you and won. A judgment can lower your credit score 50-150 points depending on how large the judgment is and how earlier late payments have already affected your credit score.

Late Payments – Probably the biggest culprit of lowered credit scores is late payments, meaning you have simply paid your debt late one or more months. Late payments are usually reported as 31-60, 90, 120, 180 days on your credit report, and the later the payments are, and the more late payments you have, the more your credit score is affected. Late payments can affect your score 50-200 points, especially if you are late paying large debts like your mortgage.

Charge Offs – If you are seriously behind on payments, eventually a company will “charge off” your debt, basically wiping it from their books. That doesn’t mean you don’t still owe it, you do, and they may even sell it to another company to have them try to collect it, but on their books they have written you off and notified the credit bureaus. Charge offs can lower your credit score 50-125 points depending on the type of debt.

Bankruptcy – While a bankruptcy lets you wipe out your debts, it definitely doesn’t clear your credit up immediately. When you file bankruptcy, your credit score can fall 100-300 points depending on how long you waited to file after you were unable to pay your debts. If you waited a long time it may not fall far due to your other late payments, charge offs and judgments. If you had fairly good credit and file bankruptcy it will likely fall farther.

It’s important to think about the consequences of paying debts late and filing for bankruptcy as your credit score can affect your ability to get a new job, get a mortgage and even be approved for a new rental. Depending on the types of debts you have, filing bankruptcy may not make sense at all so it’s important to speak with a bankruptcy attorney or get a free bankruptcy review.

Filing bankruptcy has a lasting effect on your credit score and your ability to gain lines of credit. However, filing bankruptcy can improve your credit, and there are steps to take to raise your credit score after bankruptcy.

If you are thinking about or already planning on filing bankruptcy, chances are your credit has already been affected, by slow or late payments, repossessions, extended credit or even foreclosures. Because of this, your credit after bankruptcy may actually be better than before, since the debts no longer count against your income once they have been discharged. A bankruptcy filing stays on your credit report for up to ten years, and late payments stay on for up to seven years, so the effects are similar, but bankruptcy gives you a chance to improve your credit faster because you will have an improved debt to income ratio to help.

So how do you rebuild your credit after bankruptcy? In some cases you may be able to keep one of your credit cards, this can happen in two ways. One way is to keep a card that you have no debt on, you don’t have to notify the company that you are filing, though they may find out anyway and cancel the card. The other way is to reaffirm a debt on a card, that means that you sign a contract with the company after you file bankruptcy that says you will pay off the debt anyway if they allow you to keep the card. Companies are usually willing to do this because they get paid for the debt, whereas if you didn’t reaffirm, it would be discharged in the bankruptcy.

Getting a new credit card after bankruptcy may improve your credit. You will pay higher interest rates and usually have a lower limit, but it is possible to get a credit card after bankruptcy. In order to improve your credit you must pay off the credit card each month instead of carrying a balance.

Once you do file your bankruptcy petition you will actually receive LOTS of credit card offers, lines of credit and more in the mail. Why? Because the companies know that you can only file bankruptcy once every 6 years. It’s easy to get caught up in the credit race again and fall behind, so choose wisely and spend even more cautiously. Your rule of thumb should be, if you don’t have the money to cover a purchase in your checking account, you should not use credit to purchase the item. By doing this and paying off your credit purchases each month your credit rating will increase rapidly.