When you lose your job or have overwhelming medical bills, there is often no alternative but to declare bankruptcy. The proceeding is before a judge who looks over all of your documentation and asks questions about your circumstances. If the bankruptcy judge is satisfied, your debts will be discharged. The BK, as it is known, will remain in your credit file for the next ten years. That's a long time to prove that you are worthy of obtaining credit or financing.
Whatever debts you owed, either on credit cards or personal loans etc. that are placed in the BK are discharged - generally. The judge may decide that you need to pay something off, but only on rare circumstances. Now, here is the interesting part. You must declare all of your creditors - that's the law - including credit cards, utility bills, and every other debt you have record of at the time.
Before 2005, when the law was re-written in favor of the credit card companies, you could sign a reaffirmation agreement with the creditor that you wanted to keep. That meant that you want to pay the creditor and keep the credit, which most creditors allowed you to do. But the new law states that you can no longer do that, but you may have the judge sign it in a second hearing, providing the card issuers agree. By signing the agreement and repaying your obligation on time, you work to rebuild your credit.
The second method is to apply for a secured credit card after your bankruptcy. A secured card, at least the better ones, report each month to the 3 bureaus: Equifax, Experian and TransUnion, and this will also help rebuild your score. A secured card is also known as a prepaid or debit card.
Piggybacking on to a relative's credit is also a method that helps rebuild your credit quickly. There is no chance of the family member worrying about bankruptcy since you can't file bankruptcy while you're already in it. Many banks will allow you to work with a relative with good credit because of the educational and mentoring benefits inherent in such an association.
Starting from scratch is not easy. Before you go into bankruptcy try to plan your next two years for the eventual return of your credit rating to a more normal range. It can be done, but it takes discipline. The whole point of bankruptcy is to remove the majority of your credit obligations and allow a fresh start. Know as much as you can about credit is the first place to start.
Ken Lordis is an expert in finance and business. He has been in the consulting arena for more than 30 years and has established his credentials by helping others reach their potential. As a corporate analyst, Ken has uncovered the common flaws that exist in the life cyle of a business enterprise, which coincidentally, often parallel the same mistakes many people create in their personal financial life. Trying to fix something without knowing what it is can be difficult.
Ken has written many articles and commentaries on the economy, credit and business in general. To know more about this subject, the information is available at the following website:
http://www.bestcreditcardchoice.com
Copyright © 2009 Ken Lordis All Rights Reserved.
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