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Credit Repair Workshop

Credit Repair after Bankruptcy or Foreclosure

Personal bankruptcy generally is considered the debt management option of last resort because the results are long-lasting and far-reaching. You should know when you file for bankruptcy, every credit account that you include in bankruptcy filing will become an "included in bankruptcy" item. Also, a bankruptcy filing and bankruptcy discharge listing will appear in the court records section of your credit report.

Since so many negative items are attached to bankruptcy filing, it is very difficult to remove all traces of the bad credit. Besides, with the new bankruptcy laws, many consumers are forced to pay back their debt through a five-year payment plan. For this reason, you should avoid bankruptcy whenever possible.

Obtaining Credit after Bankruptcy or Foreclosure

If you have had a house foreclosed on, or have declared bankruptcy, it will have a major effect on your ability to get new credit. A consumer reporting company can report information about a foreclosure for 7 years. A bankruptcy on the other hand can stay on your credit report up to 10 years, and can make it difficult to obtain credit or buy a home.

However, if you are in one of these situations and want to apply for a new loan, there are several things you can do.

For one thing , do not apply for a loan hoping the lender will not pull your credit report and not find out you filled for bankruptcy.

Dealing with Credit Bureaus

You might need to write a letter to the new lender explaining why the problem occurred. For example, perhaps you were seriously ill, recently divorced, or lost your job.

Another suggestion is to wait a few years before you apply for a new loan. The length of time you must wait will depend on the lender's rules and the size of the loan for which you are applying.

During that time, make a strong effort to reduce your debt and pay your bills on time. Here are a few steps you can take to improve your credit history. When you apply for a loan again, make sure the lender knows the steps you have taken to improve your credit.

Filing for bankruptcy as a last resort is nothing to be ashamed of. It is a legal procedure that offers a fresh start for people who can't satisfy their debts.

People who follow the bankruptcy rules receive a court ordered discharge that says they don't have to repay certain debts. Don't look at it as a way out. The consequences of bankruptcy are significant and require careful consideration.

How long will a foreclosure affect a FICO® Score?

A foreclosure remains in your credit files for seven years. While a foreclosure is considered a very negative event by FICO® Scores, it’s a common misconception that it will ruin your scores for a very long time. The good news is that, its effect on your FICO® Scores will lessen over time. If all other credit obligations remain in good standing, your FICO® Scores can begin to rebound in as little as two years.

The important thing to keep in mind is that a foreclosure is a single negative item, and if you keep this item isolated, it will be much less damaging to your FICO® Scores than if you had a foreclosure in addition to defaulting on other credit obligations.

Are the alternatives to foreclosure any better as far as FICO® Scores are concerned?

The common alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure, are all "not paid as agreed" accounts, and considered the same by FICO® Scores.

This is not to say that these may not be better options in some situations; it’s just that they will be considered no better or worse than a foreclosure by FICO® Scores.

Bankruptcy or Foreclosure

Bankruptcy or Foreclosure, which one does the great damage to your FICO Score? Bankruptcies as an alternative to foreclosure have a greater impact on a FICO Score. While a foreclosure is a single account that you default on, declaring bankruptcy can affect multiple accounts and therefore has the potential to have a greater negative effect on your FICO® Scores.

Chapter 7 Bankruptcy

Known as straight bankruptcy, Chapter 7 bankruptcy is the most common kind of bankruptcy. When you file a Chapter 7 bankruptcy, all your assets are sold and the proceeds are used to pay creditors and eliminate all eligible debt.

Chapter 13 Bankruptcy

A Chapter 13 bankruptcy allows the debtor to enter a debt repayment plan where the debtor gets to keep all of their property but must repay their creditors all or most of what is owed.

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