How May a Proposed Law Help You Improve Your Credit After Bankruptcy?
Posted on: 10 August 2015
Making the decision to file for bankruptcy protection is never an easy one. However, with rising interest rates and penalties and fairly stagnant wages, many Americans eventually find themselves in a debt cycle from which they can't escape without outside assistance.
Once you've declared bankruptcy, you'll want to begin repairing your credit and putting this time behind you as quickly as possible. This can seem like an uphill battle, but help may be on the way. Read on to learn more about potential changes in the way your debts (and the discharge of these debts through bankruptcy) will be reported to consumer credit bureaus.
What happens to your credit when you file for bankruptcy?
Although many consumers are reluctant to take the plunge into formal bankruptcy for fear of the long-term effect on credit scores, bankruptcy alone won't completely torpedo your credit score. Most consumers will see a decrease of anywhere from 160 to 220 points on their credit score. While this can have some impact, if you have very good credit before you file, you should still be able to maintain fair credit even at your very lowest point.
Your credit score has an impact on your ability to receive credit at competitive interest rates, and could potentially screen you out of the applicant pool for certain types of positions. You'll be able to begin rebuilding your credit as soon as your debt has been discharged in bankruptcy, but your bankruptcy will still be reported to potential creditors for anywhere from 7 to 10 years.
Demonstrating your creditworthiness to lenders by taking out small loans or using a pre-paid credit card and making timely payments will raise your credit score and can help push your bankruptcy to the very bottom of your credit report.
How will proposed changes in law help you repair your credit after bankruptcy?
One potential post-bankruptcy complication occurs when your creditors don't provide accurate information to the major credit bureaus following their notification that this debt has been erased. This account remains open on your credit report, and you're still listed as owing the debt—even when it has been legally discharged. These types of accounts can take longer to age off your report and serve as a major red flag to potential creditors, as they mistakenly indicate that you are purposely not paying a debt you still owe.
When this happens, your best bet is to contact the attorney who handled your bankruptcy so that he or she can send a letter informing the creditor of the discrepancy and requesting they immediately take steps to amend your credit report. However, this process can take months, and in the meantime, your efforts to rebuild your credit may be met with a wall. In some cases, this debt may be sold to a third party collection agency as valid debt, even after discharge, and you could begin receiving calls from collection agencies for money you don't owe.
A proposed bill would give you more options against a creditor that isn't taking action to help provide accurate information to the credit bureaus, or sold your debt to a third party buyer when it didn't have the legal right to do so. You would have the power to sue your bank or other creditor for any damages resulting from their deliberate misinformation, including things like failure to be hired for a job after a credit check, or emotional trauma from the hassle of dealing with collection agencies.
While this bill hasn't yet been voted into law, it has strong support from many legislators on both sides of the aisle, and is likely to be implemented in some form during the years to come. Stay ahead of bankruptcy and stay informed about your options by contacting resources like Wade Bettis, J.D., Ph.D., PC.
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