Even if the economy is on the road to recovery, in recent months many people suffered debilitating debt and sought relief through bankruptcy filings.
Although bankruptcy can negatively impact a filer’s credit score, these proactive steps can help to rebuild it.
Steps that can aid in rebuilding a credit score include:
Those attempting to rebuild their credit score should start by getting a copy of their credit report and taking the time to carefully review it. It is important to make sure there are no mistakes and that all information is accurate. If, for example, the residence listed on the report is incorrect update it.
It is also important to use a credit card. This may seem counterintuitive, but using a credit card correctly can actually help build a credit score. This requires the user to make payments on time every month. Making these payments builds a positive credit history and helps to establish that the user can manage debt.
In a similar fashion, properly managing a larger amount of debt can also build one’s credit score. As a result, those with the ability to afford mortgage payments or car payments should consider financing one of these larger purchases. These purchases can have an additional positive impact on a credit score, much like a credit card, but only if payments are made in full and on time.
Financial experts also advise those who recently filed for bankruptcy to be on the lookout for predatory lenders and payday loans. Predatory lenders provide loans at a very high interest rate while payday loans charge high fees. Credit counselors report payday loans have required consumers to pay up to 400 percent more than borrowed. As a result, those cashing a $100 check through a payday loan operation could end up paying as much as $40,000 to the payday company in fees.
In addition to predatory lenders and payday loans, it is also important to avoid scams promising to rebuild credit quickly. Rebuilding credit can be done, but it takes time and effort.
For those considering filing for bankruptcy protections, it is helpful to know some basics. Generally, bankruptcy begins by filing a petition with the bankruptcy court. Bankruptcy cases are filed in federal courts. In California, there are four U.S. Bankruptcy Courts: the Central, Eastern, Northern and Southern Districts of California.
A bankruptcy filing includes a statement listing all assets, income, liabilities and a list outlining the amount of debt owed and who the creditors are. Once filed, creditors are legally required to stop collection efforts against the filer, a process referred to as a “stay.” Depending on the type of relief requested, bankruptcy either results selling assets to pay off creditors or development of a repayment plan.
Bankruptcy law is complex. As a result, if you or a loved one is considering filing for bankruptcy relief it is important to contact an experienced bankruptcy attorney to help you decide if bankruptcy is right for you.