Repairing Credit Post Bankruptcy Bankruptcy is not an easy decision to make.
Credit Snapshot <ul>Typically, when filing Chapter 7 bankruptcy, a person is wallowing in late payments and unable to managed their debt with their income. The most common reasons for bankruptcy are: <li>Unemployment
Medical Expenses <ul>A study conducted in 2001 noted high medical expenses as the number one reason to file for bankruptcy. Over 50 per cent of filings were a result of the inability to pay medical bills acquired. </ul>
Recovering <ul>Bankruptcy is a public record that remains on your credit for ten years. Prior to filing Chapter 7 (liquidation of assets) or Chapter 13 (reorganization of debt), filers have experienced significant damage to their credit through the inability to make all of their payments. </ul>
<ul>Because most people who file Chapter 7 bankruptcy have had a poor track history of making payments on time, once the debts are discharged from their credit, their scores actually begin to improve! Within TWO years, it is possible to purchase a home with the same interest rates as those who have not filed bankruptcy. Once debts are discharged, it is time to begin the repairing process... </ul>
Easy Way to Recovery <ul><li>Obtain a secured credit card. </li><ul><li>Typically banks will allow anyone to acquire a credit card with a security deposit, guaranteeing the balance (equal to the deposit) will be paid.
Begin using this card and paying it in full every single month, on time or early!
Maxing out your credit card and paying it off each month will actually reflect well on your credit report. </li></ul></ul>
Credit Repair Continued <ul><li>Every three to six months of on-time and early payoffs of the full amount on your credit card, request an increase to your credit limit.
Initially, the bank may request that you pay for the increase by depositing additional funds to your secured balance, but with proving your track record, they will increase the balance without you providing any additional security deposit. </li></ul>
Buying a House Post Bankruptcy <ul>These are the most important factors considered by lenders post bankruptcy: <li>Size of your down payment </li><ul><li>Many loans only require 3-5% down. Save a minimum of 10 to 15% of the purchase price for your down payment. </li></ul><li>Stability of your income </li><ul><li>Solid employment for 1 to 2 years favors well, along side verifiable income. For freelancers, this means at least 2 years of stable tax returns provided, showing no decrease in wages. </li></ul></ul>
Finding a Home <ul>When you begin the process of finding a home, you will first want to secure a pre-approval letter from a mortgage broker. With that letter, you will be very much aware of your limit when it comes to selecting a house. Lower that figure by 25-50 per cent when looking at homes. Increase in 10 per cent increments until you find a house you can make a home. This is a responsible way for any individual to purchase a home, ensuring you will be able to build your savings while building equity in your property. For those who faced credit challenges, your DTI (Debt to Income) ratio will be smaller and more easily approved. </ul>
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