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File bankruptcy – Rebuild credit

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Paul AllenAfter a debtor receives a discharge in bankruptcy, creditors whose debts are discharged are required to report that the account has a zero balance. The bankruptcy itself is a public record and stays on your credit report for 10 years, but as you will see from this article, this is not all bad.

A debtor interested in re-establishing credit after bankruptcy should obtain credit reports from the 3 largest credit reporting agencies, (Experian, Equifax, and Trans Union) and ensure that the account balances have all been zeroed out. If not, the debtor should contact the credit reporting agencies and ask that the record be corrected.

Credit reports can be obtained free, once a year, from the credit reporting agencies own sponsored website “Annualcreditreport.com”.

There are several methods of re-establishing credit. A debtor seeking to re-establish credit should apply at banks that specialize in offering credit cards to post bankruptcy customers. These can be found by searching on the internet. Many banks will offer a secured card program. This is usually a Visa or Master Card, where the customer is required to establish a savings account at the bank. The deposit into the savings account is used as security or collateral for the card. Typically, the limit on the card is based on the amount of collateral put up in the form of the savings account. Often, the bank will have an annual fee. The benefit of the secured card is that it provides a way forward to reestablishing your credit.

Other methods include buying a car from a local car dealer who advertises that it specializes in making car loans to persons with a recent bankruptcies. Also, a debtor with a personal relationship with someone at a local bank should not hesitate to seek assistance from that source.

Caution in Rebuilding Credit. Debtors emerging from bankruptcy should use their experience to avoid getting into the same financial traps, which snared them before. All too often, this was the easy availability of unsecured credit in the form of unsolicited, pre-approved, credit cards. Debtors should take steps to budget properly, not spend beyond their means, and resist the temptation to incur debt beyond their reasonable ability to repay just for the purpose of re-establishing credit.

Avoid these so-called “credit repair” agencies. They are often simply unregulated rip-offs, who prey on the financially-distressed, and do nothing more than what debtors can do themselves. Our office can show you how to repair and improve your credit yourself, through lawful and ethical means. You can do this yourself, by exercising your legal rights under the Federal Fair Credit Protection Act.

Some debts cannot be discharged in bankruptcy. As a general rule, older income taxes (more than 3 years old) can be wiped out in bankruptcy; but newer income taxes (less than 3 years old) cannot. A debtor/employer can wipe out the employer’s portion of older, but not newer, payroll taxes. The discharge-ability of state and local taxes, such as sales and use taxes, will depend upon their true nature, i.e., whether they are excise or withholding taxes. The trust fund portion of payroll taxes is generally not dischargeable. Prior to filing bankruptcy, the debtor should have his own particular tax situation assessed.

The Test for wiping out income taxes in bankruptcy include:

The tax return was due more than 3 years prior to the filing

The tax return was filed at least 2 years prior to the filing

The tax has been assessed for at least 240 days prior to the filing

The tax is not based on a fraudulent return

There was no willful tax evasion by the debtor.

In Chapter 13, income taxes can be wiped out if the return was due more than 3 years prior to the filing, and was assessed at least 240 days prior to the filing. In some cases, the tax may be dischargeable even if not assessed prior to the filing.

Can Utility Debts Be Discharged in bankruptcy? Public utilities, such as the gas and electric company, are not permitted to discontinue service because of a bankruptcy filing. However, if the utility bill is included in the bankruptcy and not paid, then the utility has the right to demand that the debtor pay a deposit within 20 days to ensure the continuation of service. Sometimes, the requested deposit is several times the amount of the bill, so it often makes sense for a cash-strapped debtor to simply pay the bill. Utility bills for service arising after the bankruptcy filing is not included in the bankruptcy, and must be paid.

Does the Bankruptcy Code prohibit discrimination based on a bankruptcy filing? The Bankruptcy Code contains an “anti-discrimination” provision, stating that government units and private employers may not discriminate against a person solely because that person has filed bankruptcy or was insolvent. Also, if a debtor has lost his driver’s license solely because of his inability to pay damages resulting from an accident, then a bankruptcy discharge will allow the debtor to get his license back.

As stated above, a bankruptcy stays on your credit report for 10 years. However, you can still rebuild good credit getting a fico score above 700 in just a few years. There are many companies that target people with bankruptcy discharges. Here are the reasons why:

You cannot file a new bankruptcy and discharge debt again for 8 years.

New creditors are protected for 8 years.

You no longer have unsecured debts.

Your debt to income ratio has improved.

Credit card companies will charge higher rates, but it’s more money for them.

Yes, you will pay a higher price to reestablish credit, but that’s what it takes to make it back.

If you need help in managing debt, negotiating with creditors, modifying a home loan, rebuilding credit, or even making ends meet, give me a call. My consultations are free and I care. Let me help you. Call today.

Two offices to serve you. Glendale: 818-334-5445. Cerritos: 562-356-9931. Law Offices of Paul M. Allen.

 (This article is for information purposes only, and does not necessary reflect the company’s opinions and views on general issues. We make no warranty, prediction nor representation, nor do we assume any legal liability for the completeness of any information and its effect on any case. Each case is different and results depend on the facts of each case. Consult with and retain counsel of your own choice if you need legal advice.)

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