Be Mindful Of Your Credit Habits
A good rule of thumb when rebuilding your credit is that whatever you did to ding your credit, you must do the reserve to rebuild your credit. For instance, if you hurt your credit score by having too high a debt-to-income ratio, then make a point to keep your DTI low. Youll want to keep your credit usage to 30 percent or under.
If you fell into the habit of missing payments, then do whatever it takes to stay on top of your credit card payments. Remember: your payment history makes up 35 of your credit score. If you tend to rack up a huge credit card bill over the holidays, and experience holiday debt hangover, avoid it at all costs this holiday season.
Why this matters: Your credit habits play a big part of keeping your credit score in tip-top shape. And when youre rebuilding your credit after bankruptcy, it is particularly important to show to lenders that youre financially responsible.
How to get started: Start by making on-time payments, monitoring your financial habits around using credit. It might also help you to sign up for a free credit monitoring service, which can show you how much progress youve made on building your credit back up.
Can You Keep Some Credit Cards If You Declare Bankruptcy
Unpaid medical bills and being out of work for an extended period are the leading reasons why someone may file for bankruptcy. Most people use bankruptcy as a last resort when the burden of debt becomes overwhelming. Bankruptcy essentially freezes your credit file, meaning you can’t apply for any new credit while your case is pending.
If you used your to stay afloat, its almost impossible to get a handle on that debt without some help. Learn whether you can keep some credit cards if you declare bankruptcy.
Qualifications For Filing Bankruptcy For Credit Card Debt
If you want to file Chapter 7 or Chapter 13 bankruptcy, there are qualifying standards to meet, most of which are intended to determine whether a consumer is capable of handling the debt themselves. People wanting to file Chapter 7 bankruptcy must pass a means test and those trying to file Chapter 13 have strict amounts of debt they cant exceed.
The means test for Chapter 7 involves two considerations. You can pass the test if your income over the previous six months is under the median income for your family size in the state you live. The majority of Chapter 7 filers pass the means test this way.
If you dont, then you move on to the second consideration: Is there enough income left over to pay down your debt, after deducting expenses for essential items like rent, food, clothing, transportation, utilities, etc.
If there is enough money left, you will be dismissed from Chapter 7 and referred to filing for Chapter 13. If there isnt enough money left over, you may qualify for Chapter 7.
In Chapter 13, the qualifying debt amount for an individual cant exceed $419,275 for unsecured bills and $1.257 million for secured debt . Be careful with both categories of debt. If you have fallen behind on payments, your totals may exceed the allowed amount.
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The Chapter 13 Plan And Confirmation Hearing
Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed. Fed. R. Bankr. P. 3015. A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.
There are three types of claims: priority, secured, and unsecured. Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of bankruptcy proceeding. Secured claims are those for which the creditor has the right take back certain property if the debtor does not pay the underlying debt. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.
The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless the debtor contributes all “disposable income” – discussed below – to a five-year plan.11 U.S.C. § 1322.
Will The Credit Card Company Let You Keep Credit Card
Most credit card agreements have a term, which says that if you file for bankruptcy, then they can close the account.
The credit card company almost always has the right to cancel the account at their sole discretion.
In my experience:
- Sometimes they cancel the card automatically when you file bankruptcy, but
- Sometimes they dont
It really depends on the policies of the lender.
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The Type Of Bankruptcy Counts
There are two basic types of personal bankruptcies:
- Chapter 7. This is where all of your debts are eliminated and any assets you own that arent exempt will be sold off and used towards your debts. This will wipe out what you owe your creditors but also anything you own of any value. Chapter 7 allows for a fresh start, as once the bankruptcy is discharged, or completed, youll no longer have any liability towards creditors, but your credit score will be severely damaged.
- Chapter 13. With this type of bankruptcy, your debts are restructured, which means that you and the creditor come to an agreement over how much of the debt you will repay within a time frame of three to five years. Any remaining portion of your debt is forgiven. Although this type of bankruptcy is less damaging to your credit, it still has a strong negative effect.
Who Is Eligible For Chapter 13 Bankruptcy
Anyone with regular income can file for Chapter 13 bankruptcy, as long as the total debt is within the threshold. The individuals income level helps determine the timeline of the repayment plan.
If your income exceeds the median level in your state, youll repay your debts over five years. If your income is below the median, repayment will take place over three years.
Here are some things to consider if you are thinking about filing for Chapter 13.
- Regular income is required.
- You must provide up-to-date tax returns and payments.
- Unsecured debts, like those from unsecured credit cards and personal loans, cant exceed $394,725. Secured debt for example, from a mortgage or car loan cant exceed $1,184,200.
- You may not qualify if youve had a bankruptcy dismissed within 180 days for a failure to appear in or comply with the bankruptcy court.
- To receive a discharge at the end of a Chapter 13 repayment plan, you cant have received a discharge from a Chapter 13 bankruptcy within the previous two years or from a Chapter 7, Chapter 11 and Chapter 12 within the previous four years.
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Secured Bankruptcy Credit Cards To Consider
1. Discover it Secured Credit Card
The Discover it Secured Credit Card is a great option for those looking for cashback rewards! With a $200 minimum deposit and no annual fee, so you can rebuild your credit without putting a nick in your bank account.
Earn Monthly Spending Checks: One of the best perks about this bankruptcy-friendly credit card is that if you improve your credit score enough over the course of using it, Discover will automatically perform monthly checks on your spending habits. If you meet their requirements, they’ll automatically refund your deposit without the need to close the card.
Get Cashback: The Discover it Secured card offers 2% back on the first $1,000 you spend on gas and groceries combined each quarter, as well as an unlimited 1% back on all of your other purchases.
2. Capital One Secured Mastercard
If you feel that the minimum $200 deposit for the Discover it card is too high, then consider applying for the Capital One Secured Mastercard. This card is a great entry point when rebuilding your score.
Flexible Deposit: Capital One allows borrowers to deposit $49, $99, or $200, depending on their creditworthiness. These deposits are refundable and qualify users for a starting credit line of $200. After five months of timely payments, users will have the ability to qualify for higher monthly amounts.
Youll Only Be Eligible For Certain Cards
Filing for bankruptcy, regardless of which type and the circumstances, will have a lasting impact on your credit score. And, a bankruptcy will show on your credit report for a significant amount of time. A Chapter 7 bankruptcy will stay on your credit report for 10 years and a Chapter 13 will stay on your report for up to seven years.
With a less-than-stellar credit score, responsible use of a credit card can help rebuild your score. But it may seem like a Catch-22 since you wont qualify for many cards like those offering rich rewards or premium perks.
The best move is to apply for a card designed for someone looking to build their credit. A secured card is an ideal card for this purpose and even with a fresh bankruptcy you may be able to get approved. With a secured card, the credit limit you receive is typically equal to the amount of the security deposit you put down.
There are also a handful of unsecured cards that wont check your credit score or are willing to extend a line of credit even to someone with a blemished credit history. These cards typically come laden with fees and sky-high rates. Secured cards tend to have lower costs.
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Filing Bankruptcy On Credit Cards Only
Filing bankruptcy just to eliminate credit card debt is not practical for one reason: You must include all debts when you file bankruptcy. Thats true whether youre filing Chapter 7 or Chapter 13.
So, if you had no other debts, there are better options for paying off , like debt management or debt settlement programs, that wouldnt be as drastic or have as much negative impact as bankruptcy.
The Chapter 13 Process
The Chapter 13 filing process generally takes 95 days from the filing of the petition to the approval of the repayment plan. But the bankruptcy wont actually be discharged until the three- to five-year plan is completed.
Heres what to expect over a typical Chapter 13 bankruptcy proceeding.
- A list of creditors and how much is owed to each
- Evidence of income
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How Much Of Your Credit Card Debt Will You Pay In Chapter 13
When you file your Chapter 13 plan, you must list all your creditors and propose how you will pay each class of debt. Your plan payment must be enough to pay all secured debts if you want to keep the property securing the debt, plus all priority unsecured debts.
However, you must also pay whatever you can afford into your plan — so if you can afford to pay more than just your secured and priority debts, you will be required to do so. The credit card companies will receive a percentage of what is owed to them based on this leftover amount.
Example. Joe owes $5,000 on his car and $10,000 to the IRS. To pay these claims with interest, he must pay enough into his Chapter 13 plan every month to pay $20,000 over the next three years. Joe’s credit card debt totals $40,000.
Because of Joe’s income and expenses, he can afford to pay $30,000 over the next three years. That means $20,000 will go to secured and priority debts and $10,000 will go to his credit card debt. $10,000 is 25% of $40,000, so each of Joe’s credit card companies will receive 25% of what is owed. The rest will be wiped out when Joe receives his discharge at the end of the Chapter 13 case.
Mar Can I Take Out Credit Cards During My Chapter 13 Bankruptcy
Can I take out credit cards during my Chapter 13 Bankruptcy? Short answer, you may not take out any lines of credit either through credit cards or loan applications during your Chapter 13 Bankruptcy. You might think that you will have no opportunities to ever have a credit card again after filing bankruptcy but this just is not true. The Court does not want you to take out credit during a Chapter 13 without permission because the judges want to ensure that you are not going under water by taking on new debt during your case.
Be very aware that you will be flooded with credit card applications during your Chapter 13. You will need to exercise great restraint to not indulge in temptation and apply for a credit card during your case. This will be harder than your think. The credit card companies will use PACER to research who files bankruptcy and then they issue credit card applications to those who have just filed. The credit card companies count on you being weak and feeling restrained by the bankruptcy. They are hoping that if they send enough applications and as the holidays, birthdays and the weekends roll around that you will break down and fill out the application and use the line of credit.
Remember knowledge is power and you need to prepare to survive in a Chapter 13. Listen to your attorney and learn to live on a budget. The lesson in a Chapter 13 is just like anything else, you must take one day at a time. It is your life and you need to take financial control.
Rebuilding Credit After Bankruptcy
Following the completion of your Chapter 13 case, you may initially find it difficult to get approved for credit cards or other lines of credit. One way to begin reestablishing your credit is to apply for a secured credit card. This type of card requires you to deposit cash collateral with the card issuer, which then serves as your credit line. The key to improving your credit score is to pay off your balance in full each month and make your payments on time. Once you establish a solid payment history, the card issuer may convert you to an unsecured card.
St Louis Bankruptcy Attorney Tobias Licker About Credit After Filing For Bankruptcy:
For most people, bankruptcy is a last resort. Usually a series of financial problems begins as a slow downward spiral, and then the crisis accelerates to a point of desperation. You become so used to being told no when applying for credit that you assume youll never have credit again.
So many consumers are surprised when the credit card offers start rolling in as soon as the bankruptcy is finalized. And even though their debt has been discharged, they still have the mindset of desperation and eagerly grab any card thats offered.Can you get one or more credit cards after bankruptcy? For most people, the answer is Yes! However, a better question is Should you get this particular credit card after bankruptcy?
Its important to remember that the credit card companies arent offering you a card because they kindly want to help you re-establish your credit. Theyre making the offer because they plan to make a big profit from you. And the bad credit card system is set up for them to make money whether you pay the bill on time or not.
A not good option: the unsecured credit offers in the mail
A better alternative: secured credit card
Should I get a new credit card at all?
Once your bankruptcy is finalized you can get a credit card. Just make sure that the card meets your needs and will help you rebuild your credit rating under reasonable terms.
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Restrictions On Obtaining Credit During Bankruptcy
Obtaining credit during bankruptcy can be challenging. If you file for a Chapter 7 bankruptcy, you can apply for credit as soon as the debt is discharged. With Chapter 13 bankruptcy, you will need to receive prior approval from the court or Chapter 13 trustee. Additionally, your plan payment must be current at the time of the request.
If you would like to get new credit during your Chapter 7 or 13 bankruptcy case, you should consult an experienced Cleveland bankruptcy attorney at Luftman, Heck & Associates. We will explain your situation to you and help you understand obtaining credit during bankruptcy.
Call us today at for a free consultation.
Using A Secured Credit Card To Rebuild Your Credit After A Bankruptcy Discharge
Bankruptcy will help wipe out your debt and get your life back on track financially. However, after you have eliminated your debt, you will need to take steps to rebuild your credit. Filing for bankruptcy will temporarily hurt your credit score and having good credit is important. Without it, itâll be very difficult to buy a new car or home. Even most car rental companies perform a credit check before they will approve your request for a rental car.
Bad credit may even prevent you from being approved to rent an apartment. To determine your creditworthiness, lenders consider your credit score record. After filing for bankruptcy, your credit score will drop, but by the time you filed for bankruptcy, chances are that you had already fallen behind on your payments and your credit score was already negatively impacted. As a result, filing for bankruptcy isnât the end, itâs a new beginning. After receiving your discharge, you can take immediate steps to build credit. People sometimes think itâs impossible to get approved for new loans after filing for bankruptcy, but thatâs not true, it just takes some time and effort.