Credit After Bankruptcy– What Does a Discharge Mean

We have provided some valuable information below about your discharge and what to do going forward.

 What The Discharge means:

The Discharge means that none of the creditors you listed on your bankruptcy petition can NEVER try to collect that debt against you ever again. If they ever try, they may be in violation of the Discharge Order. Let us know if this happens.

NOTE: some debts like child support, student loans and certain taxes are not dischargeable.

Reaffirmation (keeping debts):

If you reaffirmed a debt in your bankruptcy, remember that you are still obligated on that debt so you need to continue to pay that debt on time. If you cannot afford the payment, you have 60 days from when the agreement was filed to rescind and void it.

What to do Next?

Go ahead and pull your credit reports from the three major credit bureau. When you pull them, do not be surprised if you see that some of your debts are still being reported incorrectly.

You can get one free report from the three major credit bureaus each year. Go to www.annualcreditreport.com to access the web site set up by the Federal Government under the FACT Act. You will set up an account with each agency. They will issue you a login and password. Keep this information handy — you will need it later.

Ideally, your credit report should show your discharged debt with a ZERO balance and it should say “Included in Bankruptcy” next to it. If it does not say this, then log back into the web site and go to “DISPUTE.” This will pull up every creditor on your credit report. Just click on the creditor you are disputing and it will being up a selection of reasons for disputing that debt. All you need to do is click the reason “Was included in my bankruptcy filing.” It’s that easy.

In about 45 days, the agency will update your report showing the debts being reported correctly. It’s easy to take care and something that you should do right away.

IMPORTANT: Make sure that your Credit Report is UPDATED and CORRECTED PRIOR to getting any type of financing. Especially if you are buying a house or car!

The Next Two to Three years:

The next two to three years are the most important time to re-establish and rehabilitate your credit. You don’t need to lay low for the next two to three years, but you should continue focusing on living within your means and paying cash. This means buying things used, buying things at thrift stores, and not buying and financing a bunch of new stuff that you cannot afford. You need to learn to live and stay on a budget.

Of course this doesn’t mean that you shouldn’t get any credit at all. Normally it helps to have two to three new credit items on your credit report after a bankruptcy filing. This may mean getting a car loan or applying for a credit card. You should be receiving offers for new credit as we speak. However, please be SMART about any new credit you receive. Pick and choose credit that is the most affordable with the fairest terms. The main impact your bankruptcy has on your credit is

making your new credit much more expensive. You are still considered a credit-risk and you will have to pay a much higher rate of interest than someone with a better credit score.

Most importantly, once you establish new credit, you must pay ON TIME. If you increase your income, re-establish your credit, and pay on time; then you should find that after four or five years, your credit score will greatly improve and the bankruptcy will not affect you as much anymore. After the fifth year, most lenders will only want to know what have you done with your credit since the bankruptcy and how able will you be to pay for your new credit.

RECOMMENDATIONS:

Your credit score (FICO) and how high you can get it after bankruptcy are important. We recommend that you download FICO’s 17-page booklet called Understanding Credit Reports and Scores. You can find it on FICO’s web site at www.myfico.com/CreditEducation/.

FURTHER NOTE:

Some creditors MAY report the cancellation of your debt to the IRS. If this happens, it’s mistake and one you can easily correct. To correct it, you should file a Form 982 (Reduction of Tax Attributes Due to Discharge of Indebtedness), with your Federal income tax return. Please consult with your tax advisor first if you have any questions.