Why Did I File Bankruptcy?
Bankruptcy: In 1996 over 1.2 million Americans filed for bankruptcy. Most of them did so on the advice of friends or an attorney who told them it's the best or only way to get creditors off their back. Unfortunately, most of them didn't need to, but they just didn't have the right knowledge to make an informed decision.
Whether filed as an individual or business, bankruptcy is one of the worst items you can have on your credit report, and it won't go away for a long time. Federal law does not regulate how long bankruptcies can remain on a business credit report, but personal bankruptcies remain:
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Seven years for filing Chapter 13 (wage earner)
Ten years for filing Chapter 7, 11 or 12
The bankruptcy itself would have appeared on your credit report shortly after filing papers with the bankruptcy court. The debts that were discharged will be reported one of two ways, Bk Liq Rep or Charge-Off. Remember some of the types of negotiating with creditors in our earlier newsletter.
Put yourself in the shoes of a creditor that just had $4,000 wiped out through bankruptcy. Now here re-appears the customer who virtually re-affirms his debt and is willing to settle it under certain terms and conditions. The creditor can now realize cash and a fresh seven year clock on an old account. What has this done to his receivables? You just improved his balance sheet tremendously. That's why he will entertain getting money and entering an entry on your credit report that reads "Paid as Agreed"
As just mentioned, the bankruptcy itself will be a separate entry in your file under public record and can only be removed by disputing it directly with the bureau. The only, grounds you may have is to find some mistake in the reporting of the information.
The last alternative is to file a 100 word consumer statement telling your side of the story and anything you've done positive regarding the other accounts since the bankruptcy-such as paying them off.
Fortunately, for those who have filed bankruptcy, many lenders specializing in B and C credit are thriving across the country. These alternative financing programs charge hefty interest, but they only weigh history that occurred in the last 2 or 3, years-even though it may remain on your report for much longer.
An interesting point at this time. For mortgage purposes it is considered that a Beacon Score of 625 qualifies an applicant for a conforming loan. This means that if your score is that or higher you can obtain a loan with very low or existing rates. But if your score is 624 you are automatically put into a sub-prime category. What is interesting is that underwriters only look at the credit report that is in front of them.
We had a situation where this couple has a problem with their mortgage company. Under the law you cannot be reported late until after 15 days have expired from the date the payment is due. They have kept copies of the dates of their payment and a copy of the date the check cleared their bank. The bookkeeping department of the mortgage company is lax and someone refuses to admit their mistake.
These poor folks now show a late payment on a mortgage and that has reduced their credit score to 624. We have disputed this situation but because of time constraints and the mentality of the underwriter these folks will have to pay a much higher interest rate than what they legally should. Can this be fixed? Yes, but time is of the essence. Rates were presently low and they wanted to take advantage of the market.
This is not an isolated incident. There are countless situations where the consumer does not know what credit score they have and they fall victim to higher interest rates. In this case they are re-financing a $125,000 loan. A, two point spread from 7.50% to 9.50% over a thirty year period amounts to a lot of money. In the first year their payment can possibly be $208.00 extra in interest alone. A, big penalty to pay for the system.
RE-ESTABLISHING YOUR CREDIT:
Be patient and diligent as you begin massaging your credit file into a more favorable picture of yourself for future creditors to see. Follow-through is vital. Some items will be removed with the dispute method. Others will require going through the entire process of negotiating with creditors to eliminate. But a significant facelift can be realized if you are determined to do so.
In addition to removing inaccurate, negative information, you should also work to add any positive history that may have never been reported. First, cross check your reports to see that all positive information is duplicated. If you find an omission, send a letter to that agency requesting that they verify your credit history with that *lender.
IMPORTANT NOTE: Sometimes the major credit bureaus will not allow you to add a positive entry from a creditor if that creditor is not a subscriber to that bureau.
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