Rebuilding Your Credit
RECEIPT OF THE BANKRUPTCY COURT'S DISCHARGE ORDER AND REBUILDING YOUR CREDIT
Many people who are considering filing for Chapter 7 or Chapter 13 bankruptcy relief are under the misconception that by filing bankruptcy their credit worthiness will be ruined for 7 to 10 years. For most individuals who legitimately fall under the scope of Chapter 7 or Chapter 13 bankruptcy protection, nothing is further from the truth; most often the opposite is true. The vast majority of individuals who need to consider bankruptcy already have poor credit, i.e. they are seriously behind with one or more of their payments to creditors (usually credit card payments), and have no hope in the foreseeable future of becoming current with their creditors. Credit card companies and other lenders do not want to give credit to anyone who is not making their payments on existing debts. For these individuals filing a Chapter 7 bankruptcy petition is usually the first step on the road to rebuilding their credit.
Most people, who are eligible to file for Chapter 7 bankruptcy protection, cannot procure mortgages, car loans or related credit at reasonable rates or at all. Although filing of a bankruptcy petition will lower the petitioner(s)' credit scores on file with the national credit reporting agencies, Experian, Trans Union and Equifax (hereinafter referred to as the "agencies"). By removing the tremendous burden of all unsecured debts from their shoulders, bankruptcy petitioners can usually find the ability to pay all of their previously existing, secured creditors and new, unsecured creditors on a timely basis. Each of these post petition payments gets posted with the petitioners' reports on file with the reporting agencies. The owners and presidents of several New Jersey Lending Companies have informed me that by paying a minimum of three, preferably four, creditors on time each month, most individuals will be able to procure mortgages, car loans and related credit at either market or slightly higher interest rates (1/2% to 1% higher) as early as two years after receipt of their discharge order. The Chapter 7 bankruptcy process takes approximately four months from the date of filing through the receipt of the Court’s discharge order.
The most typical creditors who automatically report all payments to the agencies, include mortgage companies and their servicers, automobile lenders and credit card companies (including store and gas cards). For petitioners who do not have a mortgage or own a car, it would probably be best to try to keep one or two unsecured credit cards with small balances so that they will be able to pay a minimum of three or more creditors each month after their bankruptcy case is filed and/or over. These petitioners should also have no problem being able to procure two or more secured credit cards shortly after receipt of their Discharge Order. I, of course, do not recommend that petitioners, or any individuals for that matter, build up significant credit card debt after filing for bankruptcy protection; the amount of money charged every month is irrelevant. Discharged petitioners can rebuild their credit by paying the minimum payment allowed i.e. $10.00 or less to each of their credit cards, as opposed to paying off their entire balances in full every month. While paying off the entire balance is preferable, what is most important is that discharged petitioners use their charge cards and, at least, timely pay the minimum balances due each month. Being able to access credit and having reasonably good credit scores is of great value in our country.
Marc G. Alster, Esq.
Two University Plaza, Suite 311
Hackensack, New Jersey 07621
Offices are also located in New York, N.Y. and White Plains, N.Y.