As you go through the process of filing and making payments toward your chapter 13 bankruptcy plan, it’s natural to wonder if you can rebuild your credit now or if you have to wait until your bankruptcy plan is over. Fortunately, it is possible to start rebuilding your credit during this process. At Kain + Henehan, we help our clients regain their financial footing and rebuilding your credit score is part of that.
What Happens to Your Credit While You Are in Bankruptcy?
When you file for chapter 13 bankruptcy, your accounts become legally protected. This means that you can’t be sued or have collection agencies calling you. However, you also can’t use the accounts that are protected while they are in bankruptcy. In many cases, the old accounts will be closed.
This can make it more difficult for you to get approved for anything that requires a credit check, such as a loan, mortgage, or a credit card. However, this doesn’t mean that you are barred from open a credit card or loan. You can work with bankruptcy attorney for guidance on how to obtain financing if you need it. Applying for a secured credit card actually aids in rebuilding credit.
To Rebuild Your Credit During a Chapter 13
You start rebuilding your credit during a chapter 13 bankruptcy by making regular payments to your creditors through the plan. This shows them that you are making payments, which will help your credit. Make sure that you are paying the correct accounts and keeping good records of this to show the court. Making consistent payments shows you are making the proper effort towards fulfilling your plan.
Getting Court Permission for Loans and Mortgages During Chapter 13 Bankruptcy
If you want to take out a loan to buy a car or a home, you may wonder if you can do this during your Chapter 13 bankruptcy. It is possible to request permission from the court to do this, but it’s not a guarantee that you will be approved. The court will look at your income and expenses, as well as the number of payments you make on your chapter 13. If your payments are very low, and you have the ability to make these payments in addition to your repayment plan, the court may approve your request.
Find a Co-Signer
A co-signer is usually a family member or a close friend, who will promise to pay off the loan or mortgage if you can’t. A co-signer may be able to help you secure a loan or mortgage after you filed for bankruptcy. However, you may have to pay a higher interest rate on the loan.
Using a Secured Credit Card to Rebuild Your Credit During Bankruptcy
If you want to get a credit card and start building your credit, it is possible to do this during your chapter 13 bankruptcy. However, you will want to get a secured credit card, which means you have to put a certain amount of money on deposit like a security deposit given to a landlord to rent an apartment. The amount you pay as a security deposit can vary. A security deposit may be the same amount as your line of credit. For example, a $400 deposit might give you a $400 credit limit. Some card issuers may allow you to deposit less but allow a higher credit limit such as depositing $100 and having a $200 credit limit.
With a secured credit card, you will want to make consistent monthly payments as this will be reported to credit bureaus. A secured credit card can be a great option for people who are establishing or rebuilding their credit.
Get Support from your Bankruptcy Attorney
It’s not uncommon to feel nervous or even afraid before you file for bankruptcy. However, remember that you don’t have to do this alone. Once you get your bankruptcy lawyer, you can work together to create a plan that works for you and your family. You can put a stop to harassment from creditors and collectors, as well as keep your car, home, or other property protected in one of the most effective ways possible. At Kain + Henehan, we believe a bankruptcy is simply a tool that everyone has the ability to use when the time is right. We look forward to meeting with new clients and hearing their story. We never want you to be embarrassed or ashamed of your debt. We are here to help.
Bankruptcy protections exist for a reason. Sometimes people find themselves in a state of complete financial distress due to unforeseen job losses or medical expenses. Bankruptcy can help you and you can rebuild your credit in the process.
If you are looking for a knowledgeable and empathetic bankruptcy attorney in the St. Cloud, Minnesota area, contact Kain + Henehan by calling (612) 438-8006 or filling out the online form. We have offices in St. Cloud and the Twin Cities and we serve the state of Minnesota.