Bankruptcy timeline: Rebuilding credit

by Brigitte Yuille

(Originally posted on July 3, 2015 on Bankrate.com)

You’ve filed for bankruptcy. Now it’s time to start rebuilding your credit.

It will be hard to get credit at the start, but it won’t be impossible. The bankruptcy on your record means you will have to pay more to borrow money, since you’ll probably be considered a subprime borrower. Subprime borrowers pay higher interest rates and penalties for defaults because they are considered a greater risk.

Kevin Chern, a bankruptcy attorney in Chicago, says that when a person files Chapter 7 liquidation bankruptcy, the debtor immediately and dramatically reduces his or her debt-to-income ratio.

“You also eliminate your ability to qualify for Chapter 7 for another eight years. In the eyes of a potential lender, you may actually appear to be a better risk immediately.”

He says that most Chapter 13 petitioners also will see a reduction in debt-to-income ratio, but this won’t occur as quickly.

“After three to five years of living on a strict budget, Chapter 13 debtors should be much more equipped to manage their money efficiently. In many cases, after 18 months of regular Chapter 13 payments, a debtor can refinance out of a Chapter 13, especially if the debtor has any equity in a home.”

Bankruptcy experts advise consumers to try not to borrow money too quickly. Instead, they should make timely payments every month to help re-establish their credit and get loans on more favorable terms.

Jessica Cecere, president of the Consumer Credit Counseling Service of Palm Beach County/Treasure Coast of Florida, suggests waiting until your credit score has increased.

Cecere says a “650 or above is when you can shop for a decent rate.”

Read full article here: https://www.bankrate.com/finance/debt/bankruptcy-timeline-rebuilding-credit-1.aspx