Personal Bankruptcy In Colorado Is Just The First Step To A New Financial Start
One of the first questions that my clients ask me is how bankruptcy will affect their chances of buying a home in the future.
Unfortunately, there is no simple answer to this question. Obviously your credit score will take a big hit when you file bankruptcy, and the bankruptcy will show up on your credit report for ten years. But how long bankruptcy will affect you depends a lot on you. Bankruptcy is only part of the equation that will help you get a new start. You also have to make changes that may have led to your filing.
I came across a story the other day that gives some helpful tips on what steps to take after bankruptcy to help you get to solid financial standing, including qualifying for a home loan. Kimberly Palmer over at US News and World Report writes:
Address what caused the bankruptcy. Perhaps you need to set a new budget or look for new types of employment, so you don’t find yourself in the same financial straits five years from now.
Identify your goals. Recovering from bankruptcy can mean anything from reestablishing a healthy credit score to paying off all of your debts. To help focus your progress, pick a handful of top goals to work toward.
Check your credit score. Inaccurate information often plagues credit reports, which can affect everything from job applications to mortgage rates. Simply removing incorrect information often significantly improves your score.
Gradually re-establish credit. Taking out two credit cards and paying them off fully each month can help rebuild a credit score that’s been dragged through the mud. After one year, that score will start to improve, and after seven to 10 years, it could look as good as new.
Find a new credit card issuer. While lenders often hesitate to give credit cards, car loans, and other forms of credit to people with a history of troubled loans, it’s usually possible to find a willing lender. The terms might not be ideal, but new accounts will help rebuild credit history.
Over the last two years, card companies have tightened their standards in the wake of rising default rates and have raised interest rates even on reliable customers. Card comparison sites can help maximize the chances of getting the best deal possible. Secured cards, which function more like debit cards, are often the best option for those trying to rebuild their credit.
Avoid unfair deals. Predatory lenders often target vulnerable groups, including recent bankruptcy filers. That’s why recent filers should be wary of organizations and companies offering payday loans and rent-to-own deals that carry high interest rates. Consumers are often so eager for credit approval that they jump on contracts with high interest rates, but it’s usually better to wait.
Seek support. People recovering from bankruptcy can feel like social pariahs; finding yourself in this situation can be embarrassing and even shameful. But online communities of people going through the same thing can help provide the much-needed emotional support.
Think positively. Most people’s credit improves after filing for bankruptcy, because debts are cleared to give them a fresh start. While the bankruptcy filing will stay on your credit report for 10 years, many creditors are willing to take a chance on lending to those who have been in bankruptcy.
I have to say, though, that I don’t agree with Ms. Palmer’s advice about taking out new credit cards. I would advise either going only with a secured card for a year or two or simply not getting a credit card at all for a year or two. Learning to live within your means first is the first step in recovering from bankruptcy. While having a credit card around might give you some psychological relief that you have funds in case of an emergency, the fact is if you live within your means and establish a savings fund, you’ll have the money you need in case of an emergency.
You can read the rest of Ms. Palmer’s article here.
If you have questions about the bankruptcy process, we hope you’ll come in for a free, no-obligation consultation with an experienced Colorado bankruptcy lawyer. You can make an appointment by calling 303.331.3403 or by using our online scheduling system.