Sunday, October 14, 2012

Bankruptcy - should be your last option.

I had to share this story I read from our RE/MAX Website:
Bankruptcy should be your last option if you're in financial trouble. However, if your financial situation has been deteriorating for a long time, your credit standing is probably bad enough that filing for bankruptcy won’t do much to make it worse, says ApprovalGUARD President and CEO Jeff Mandel.

Keep this in mind, though: A bankruptcy remains on your credit report for 10 years. Also, creditors know that once you file for bankruptcy, you cannot do so again for seven years.

ApprovalGUARD is a credit service that assigns a personal advisor to each client to help them understand, evaluate and optimize their credit and debt profiles.

Types of Bankruptcy
A Chapter 13 bankruptcy filing, sometimes referred to as reorganization, does not discharge your obligations. It does allow you to work out a plan for paying off debts in amounts and timeframes that you can manage.

"Chapter 13 is designed to provide a solution for people who have suffered a short-term financial challenge due to a job loss or illness," Mandel says. "Although it will have a negative effect on your credit report, some creditors will view this as a demonstration of your willingness to pay your debts rather than to discharge them. In some cases, this may help you obtain new credit within a year or so."

From a credit standpoint, Chapter 7 bankruptcy is the darkest mark you can have. While it absolves you of the debts you owe (except for child support, alimony or unpaid income taxes), it makes obtaining new loans or credit cards extremely unlikely for at least a year or two - and perhaps longer.

One common problem people emerging from bankruptcy face is the catastrophic long-term impact it has on their ability to be approved for new credit at a reasonable cost. Many creditors will not lend to you for one to two years. When you finally begin to qualify again, you will typically be categorized as "extra-high risk," which often leads to lower credit limits and very high interest rates.

"The good news is that nothing credit-related is forever," Mandel says. "The effect of a bankruptcy on your credit score can start to diminish the day your case is closed."

Tips for Recovery From Bankruptcy
  • Plan your credit recovery. Take it slow and easy; don’t exceed what you can afford.
  • If your credit report contains inaccuracies about debt that was discharged through your bankruptcy, contact the creditor or the credit bureaus to request a correction.
  • If your problem was over-spending, create a written budget and stick to it.
  • To re-establish a strong credit profile, you need a good history of payments from credit cards and installment debt such as loans for autos, education or a home.
  • Consider a “secure” credit card. Such cards are usually backed by your savings account or money you place in escrow to cover 100 percent of your credit line in case you miss your payment.
  • If you don't have enough funds to survive a setback, get serious about saving for an emergency fund. In the current economy, you need at least 12 to 16 months.
  • If your problem was related to medical bills, seek out an insurance solution.
  • The rebuilding process requires you to use credit responsibly. Use only a small portion of your available credit line (30 percent or less) and make a full payment every month.

You may be able to apply for a home loan in as little as two years after the discharge of your bankruptcy. However, you should expect to pay higher fees and interest rates.

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