Presentation on theme: "RE-ESTABLISHING CREDIT AFTER DISCHARGE"— Presentation transcript:
1RE-ESTABLISHING CREDIT AFTER DISCHARGE Office of Frank M. Pees, Chapter 13 Trustee130 E. Wilson Bridge Road, Worthington, OH,
2What can be done during bankruptcy? During first year, check credit reports to see that all accounts involved in the bankruptcy are noted as “Included in bankruptcy” or “Chapter 13” or “wage earner plan.”Continue to monitor credit reports annually to avoid any surprises at end of case.
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4What can be done during bankruptcy? Opt-out of “pre-approved” credit offers to limit companies from pre-screening credit reports. orPay utility bills, new medical bills, or any other bills or living expenses on time. Recent collection accounts have a greater negative impact than older collection accounts.
5Closing procedure & Discharge Closing Procedure takes approximately 90 to 120 days to complete.Begins with payment termination letter.Certification of Final Payment & Case History issued 4 to 6 weeks later.
6Closing procedure & Discharge Order of Discharge issued approximately 30 days after the Certification.Expectation is that creditors will update accounts after receipt of Discharge Order but often they are slow to do so or even fail to update.Keep Discharge Order and Certification of Final Payment & Case History for minimum of 10 years.
7Credit Re-establishment after Discharge – Review Credit Reports The first step is to obtain all three credit reports for each person who filed bankruptcy before applying for new credit.Review each one carefully and highlight any incorrect or outdated information.Dispute incorrect or outdated information to the credit bureau which is reporting the information.
8Credit Re-establishment after Discharge – Review Credit Reports Check all information including name, DOB, past and present addresses and employers.Check each trade line for incorrect or outdated information.Check for duplicate accounts.Check to see what inquiries are listed at end of report.
9Credit Re-establishment after Discharge – Review Reports Bankruptcy should be noted in the Public Record section as DISCHARGED.Balance of each discharged debt should be reported as zero balance, including unsecured debts paid less than 100% and debts listed as NOT FILED on the Certification of Final Payment.Past due balance of each discharged debt should be reported as zero.
10Credit Re-establishment - Dispute Incorrect Information File disputes in writing, online or by form or letter.Clearly identify the trade line and account number.Be specific about what action you expect and why.Send supporting documentation, if needed.Keep copies of what you send or who you speak with.Follow up with telephone call to number listed on report, if necessary.Credit bureaus must investigate your disputed information within 30 days.If creditor can’t verify their information is correct, it must be removed and a new report will be sent to you.
11Charged-off AccountsCharged-off accounts are considered bad debts that are at least 180 days past due.Before a bankruptcy case is filed,lenders can pursue bad debts through their internal collections department, sell or assign the debt to a collection agency, or pursue legal action.Lenders make a cost-benefit analysis in determining their plan of action.Higher debt amount or higher credit score makes it more likely lender will actively pursue collection.Secured debts are more likely to be pursued through legal action.
12Charged-off AccountsSome companies refuse to remove the “charge-off” notation even after discharge.If account was already charged-off at the time the bankruptcy was filed, the notation does not have to be removed.But, always ask to have derogatory info removed after discharge because most companies will do so.
13Why Have Credit Reports? The end result of credit reports is to generate a credit score.Several different scoring models exist but over 90% of credit lenders and insurance companies use the FICO scoring system.Your score depends on information on report on the day the score is requested.Credit score at bankruptcy discharge depends on what credit score was at time bankruptcy was filed.
14Credit Re-establishment - third step: Buy Credit Score The third step is to buy your credit scores to know what they are and how much rebuilding has to be done. FICO score is used by most creditors.Credit score at discharge depends, in part, on credit score at time bankruptcy was filed.Credit scores can be shared with future creditor grantors before applying to find out whether approval is likely or not.
15Credit scoring Credit scoring is done by computer. Gain points for positive info & lose pointsfor negative info.Most creditors use FICOscore:FICO scores can be obtainedatVANTAGE score is& uses letter grades, A to F.To calculate estimated FICOscore from a VANTAGE score,multiply it by .86.
16Bankruptcy notation on credit reports Discharged Chapter 13 cases are listed on credit reports for 7 years from the filing date of the bankruptcy.Chapter 7 cases are listed for 10 years.Dismissed (uncompleted) Chapter 13 cases can be reported for 10 years from the date of filing.Request the bankruptcy information be removed after seven years if it has not been deleted.
17ChexSystems: A special report Each notation submitted to ChexSystems stays on file for 5 years unless removed by the reporting financial institution.Reports can be obtained atIf debt is discharged, report must show zero balance, discharged in bankruptcy.Chase offers Access Checking.US Bank offers Second Chance Checking.
18Know your rightsFair Credit Reporting Act (FCRA) regulates the collection, distribution, and use of consumer credit information. 15 U.S.C. §1681Fair and Accurate Credit Transactions Act (FACTA), an amendment to FCRA, allows consumers easier access to receive and dispute credit reports.Fair Debt Collection Practices Act (FDCPA) creates guidelines for collection of consumer debts. 15 U.S.C. §1692Credit Repair Organizations Act (CROA) prohibits false claims about services and prohibits payment before services are performed.15 U.S.C. §1679
19Credit repair companies Understand that credit repair takes time and persistence.Credit repair companies cannot do anything that you can’t do yourself for less.Be cautious. Many companies promise far more than they can produce.Must give a copy of the “Consumer Credit File Rights Under State and Federal Law” before a contract is signed.Must provide a written contract that lists consumers’ rights and obligations.You have a three day right to cancel contract.
20Consumer StatementWhen disputes are unresolved or accurate negative information remains, consumers may write a statement to be included in the reports.Statement of explanation should be 100 words or less.Don’t use the statement to complain or whine, use it for damage control: state the facts to explain the dispute or to clarify the situation.Statement will be provided to anyone requesting a report and will remain up to three years.Statement will not affect credit score, but may make a difference if a loan officer is doing manual underwriting.
21To Rebuild CreditOpen a savings account with a chosen bank or credit union and make regular deposits, each pay period or monthly.Save 5% - 10% of each paycheck from each wage earner.Pay all bills on time, including utilities.Before buying a car, have a down payment and select the most economical car to meet your needs.Before applying for credit, ask the loan officer about their lending policies for persons recently discharged from bankruptcy.
22To Rebuild Credit Get secured credit card Use national bank. Avoid online cards.US Bank ($ minimum)PNC Bank ($ minimum)Should report to all 3 credit bureaus.Pay off balance every month. Secured cards have very high interest rates.Don’t use more than 30% of credit limit.Look for one which becomes an unsecured line of credit after 6-12 timely payments.Be cautious. Many cards have “hidden” fees.
23If Credit is Denied Use the opportunity to find out why. Ask what actions would be necessary to be approved.Ask to be re-evaluated in 6 months if you are able to meet their conditions.If you have reason to believe you may not be approved, it is better to find out lending guidelines of a company, bank, or business before you apply.If your situation or credit score does not fall within their established guidelines, do not apply as they will not make an exception for you and your score will be reduced by at least two points.
2410 costly mistakes to avoid Don’t cosign for family, including children.Don’t cosign for friends or co-workers.Don’t sell your car to someone who will take over the payments.Don’t let car insurance or homeowners insurance lapse.Don’t spend money you don’t have, even if you know more is coming.Don’t pay bills before money is in your account.Don’t be late with regular payments so a late fee is charged or don’t pay a fee to pay a bill.Don’t borrow from retirement funds to pay bills.Don’t get a second mortgage to pay unsecured debt.Don’t have multiple credit cards or carry a balance from month to month.
25Bankruptcy documents to keep Petition, Statements, Schedules of DebtsChapter 13 Plan, any Amendments, & Modifications to PlanNotice of Intention to Pay ClaimsNotice of Transferred or Assigned ClaimsSemi-annual reportsKeep these documents for a minimum of 10 years:Certification of Final Payment and Case HistoryOrder of discharge
26Park National Bank Chapter 13 Auto Lending Program Contact: Abigail Leibold