DEBT, CREDIT REPAIR AND BANKRUPTCY

            As a bankruptcy lawyer with 19 years of experience representing debtors through the bankruptcy process, I am all too familiar with the common misgiving that everyone that goes through bankruptcy has, that is, how will their credit be affected? And, how can they get their credit back?

            Common threads that many people have who are struggling with the concept of filing bankruptcy are that their credit may already be damaged.  For these people a bankruptcy filing will likely not decrease their credit score.  The question thereafter becomes, "how will I get good credit back?" or "will the bankruptcy ruin my credit for 10 years?"

            The concept of good credit is something that we all need to be aware of, because when we have good credit, we have greater opportunities in our life to have and acquire "things" that we may want, like cars and homes on credit, or just credit cards to help us ease some of the stresses of our daily lives.  Some of us feel that good credit is beyond our reach.  But really, each one of us can have good credit.  It is not beyond the reach of any one of us if we care to work on the process.  So, if there is old debt on the credit report, the solution to the problem can be solved in one of three ways. 

 

            The first would be to conduct credit repair in an aggressive manner.  This can be done by writing demand letters to remove debt on the basis that it is disputed.  When pursuing this, the consumer must write letters to each of the credit bureaus (Experian, Transunion, and Equifax).  You may be able to electronically submit your credit dispute as well.  The purpose of the letter is to use the law under the FairDebt Collections Practices Act to your benefit.  I have personally seen the effectiveness of this path through friends and family.  This process can be time consuming, but is worth pursuing to raise the credit score, and remove old debt that serves to pull the credit score down.  If you don't have time to work on this yourself, firms like the Lexington Law Firm have a proven reputation for success, and for a reasonable fee, can complete all the steps in this process for you.

            The second way a person can effectively deal with debt to increase their credit score is to negotiate debt settlements with their creditors.  This process entails usually the offer of a lump sum settlement that approximates a percentage of the debt, usually 25% of the face amount owing when the offer is made.  The problem with this course is that their may be one or two creditors who will not negotiate, and who refuse to make any settlement at all.  When this occurs, this forces people to file bankruptcy, as they may not have the liquid funds to settle all the debt in lump sum payments.

            When the debt is too high to settle, or too new to be effective with credit repair, people often turn to the bankruptcy system for assistance.  The bankruptcy, when used as a financial tool, can be filed for the purpose of receiving a "clean slate" or "fresh start."  This avenue should be seriously considered when looking at the following aspects of a person's life:  age, total savings, including retirement and other savings and the present state of your credit score.  Age is considered in the context of savings and investments., because as we age we have less time to save.  The immediate future needs for the credit should also be considered.  Many people don't have significant savings and investments, and unless you are planning on buying a new home in the next two years, a bankruptcy filing will weigh positively in the balance of pros and cons.

            Once the bankruptcy is concluded, the process of credit repair should begin.  This process is different from the credit repair conducted without a bankruptcy filing.  What becomes necessary after the case is concluded is that new solicitations for credit are accepted by the consumer and properly managed.  For the major credit bureaus, it is a numbers game.  Once the bankruptcy is completed, you will not have personal liability on debt.  In order to have a good credit score, their must be a history of paying on debt.  The greater the number of accounts, and credit extended, the higher a person's credit score will be or become.   This means that once a bankruptcy case is finished, the person must apply for new credit cards to improve their credit score.  In the beginning, it may be that all the person might obtain would be "secured" credit cards.  There are companies that cater to assisting a person increase their credit score by offering these sorts of cards (see Bankrate.com for more information about secured cards).  Although it may not seem like a good deal, these sorts of cards go on a person's credit report and assist greatly in increasing their overall scores. 

           If new credit cards are obtained, then the next step is to manage the cards well.  No late payments should be made.  Ideally, the credit cards would be paid in full at the end of each cycle.  After 24 months of charging and timely payments, a person's credit score will dramatically improve.  I know of one individual who with successful management of his credit was able to bring his credit score to the mid 700's in two short years after his bankruptcy filing. 

            Over the years of my practice, I have personally witnessed the successes of many clients who have filed bankruptcy and rebuilt their credit in a short time, and go on to becoming real estate investors or the owners of new and successful businesses.