Chapter 7 Post Discharge Steps to Take to Rebuild Credit

1).  If you surrendered your vehicle and are unable to purchase a cash car or use a friend or family member’s vehicle then you will need to purchase a vehicle.  We advise our clients to start looking at traditional dealerships.  Try to avoid tote the note lot places.  Most major dealerships can work with a Debtor post discharge to get a vehicle financed.  If you do not require a vehicle move on to step two.  If you can put off purchase of a vehicle for about one-year you should get a decent interest rate from any dealer presuming you follow step 2.

2).  Obtain a credit card.  If possible, this should be a normal credit account, not a secured card. Most of our clients find that the major banks will issue them a credit card with a small limit immediately upon completion of a Chapter 7.  Pick something that you spend your money on each month – i.e. gas, groceries, utilities — pay the card off each month prior to the due date, and never have more than 30% of the credit limit outstanding at any one time.  If you need to pay the credit card more often than monthly to keep from hitting the 30% we recommend that you do so.  If a Debtor follows the above for approximately 1 year after the case is discharged then that Debtor would likely qualify for a reasonable auto loan less than 10% interest.

3).  90 days after a Debtor’s discharge date they should obtain a copy of their credit report from all three credit bureaus. Any unsecured debts that were incurred prior to a bankruptcy filing should show as a 0 balance and included in a bankruptcy.  If an included debt shows up in any other way you should dispute these items directly with the credit bureaus.  A debtor will need to show proof of the Chapter 7 Filing, Inclusion of the referenced Debt in the paperwork, and a copy of the Discharge Order entered in the case. If there are not any items to dispute on a Debtor’s credit report, then a substantial increase to the Credit Score should be seen about this time.  If there are items to dispute the Debtor should see a substantial increase in credit score upon favorable resolution of the disputes.

4).  During year two after discharge, continue to responsibly use credit.  If you have used the above credit card responsibly and you were required to finance a vehicle during the last 12 months, you should look at refinancing the note. If you kept a high interest vehicle through your Chapter 7 Bankruptcy you should explore refinancing to a better interest rate as well.   Capital One and State Farm Bank generally offer favorable refinance terms at this point.  Presuming responsible use of the Credit Card during year 1, year 2 should see an increase in credit limit on the card.  A second credit card could be sought if necessary.  Remember that number of accounts and how long an account has been open can negatively impact a credit score, so ensure you actually need the card that you are applying for.  Our firm would recommend cards that offer cash back.  www.nerdwallet.comcompares credit card perks start research there.  If you obtain a new card keep your first card open and active even if you are not going to use it.  Remember, age of accounts is important.

5).  At the two year from discharge mark, presuming you have followed the above steps, your credit score should be back to average, and you should not have any issue qualifying for credit.  At this point, a Debtor should qualify for a mortgage, vehicle at favorable terms, etc.

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