Bankruptcy Alternatives / Debtor's Options

Credit Rating FAQ

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Q. If I choose any option other than pay creditors in full won't my credit be ruined forever?
A. Not forever, but a Chapter 7 bankruptcy stays on your credit record for ten years. On personal financial statements you may always have to acknowledge it. That does not mean you will never get another morgage or credit card ever in you life or even have to wait ten years, but a bankruptcy or letting your credit score colapse should not be done lightly.

Q. Would destroying my credit score be such a major consideration I should not file bankruptcy for that reason alone?
A. The effect of a bankruptcy on your credit rating must be judged in comparison to your present rating. Often a debtor's credit score already has sunk to the point that a bankruptcy does not make it much worse.

Q. I have no clue what my present rating is, how do I find out?
A. Once you understand how banks view credit reports you will probably have a good idea of how yours looks. For a better handle on the whole subject you may wish to read my article on what is bad credit. Before making a final decision on your financial direction you should obtain a true copy from one of the major reporting companies. To obtain a copy of your report free visit the Free Annual Credit Report site set up by the three major credit report bureaus. That gets you copies of credit reports, not numerical credit scores, like your FICO score, to find a place to get your credit score and learn more about the difference between a credit score and credit report read the Credit Score FAQ.

Q. How do banks view credit reports?
A. To get most major credit cards, or a mortage loan at the lowest rate you'll need a flawless credit report or just some minor glitches with good explanations.

Q. At what point does a late payment become a black mark on my credit report.
A. At 30 days late; many clients become nervous their credit score has already been ruined at 15 or 20 days late. Even though you may be assessed a late charge for a 20 day late payment it most likely will not show up on the credit report.

Q. So once I've passed 30 days late the damage to my credit has been done?
A. There could be a chance that a particular creditor does not provide information to the credit reporting agencies, otherwise your slide has started.

Q. Other than those who do not report, will each piece of credit I have be on the report?
A. Probably, but commercial loans should be an expection.

Q. Can it get worse?
A. Sure, once you go over 60 days late that will be noted. Again at 90 days and 120 days, sometimes 150 days; each brings a new black mark and a reduction in credit score. In addition, the more accounts which go bad compound the issues.

Q. What happens after 150 days?
A. By this time an account will shift to the creditor's collection department, which may also be noted on a credit report. Eventually if the debt goes uncollected the creditor "charges it off" - the blackest of black marks for a single consumer debt item.

Q. Does a charge off mean they have forgiven the debt?
A. Not at all, you still owe it and they may still try to collect it. Charging off a debt just means they have written it off for accounting purposes.

Q. What if I think I still have flawless credit?
A. Trying to keep it that way will rank very high on the priority list, and it should be watched very carefully.

Q. What if I already have many charge offs.
A. Keeping good credit has already become a dead issue.

Q. No matter how bad it is now, won't a bankruptcy make it much worse?
A. Not in the short run. A debtor with many unpaid charge offs is just as unbankable as one with a bankruptcy.

Q. What about in the long run?
A. Bankruptcy stays on your credit report for seven to ten years. Most consumer debt drops off the report after seven.

Q. Is there any advantage to bankruptcy on a credit report?
A. Surprisingly there can be. Some banks prefer to see an old bankruptcy rather than old unpaid charge offs.

Q. Why might that be better?
A. An old unpaid charge off means you still owe the money and creditors may force you to pay them rather than the new creditor considering your request. An unpaid charge off also indicates an unwillingness to deal with your debt. As bad as a bankruptcy can be, it shows you have dealt with the debt. Also, you might still file for bankruptcy with an unpaid charge off. Once you file a chapter 7 you can't do it again for 6 years.

Q. Once my credit has gone sour can it be made better?
A. Better yes, but the scars may still be there.

Q. How can I make it better?
A. If you do not file a bankruptcy, deal with your unpaid items by paying them off or working them out. In any case start building new credit and be careful to keep up timely payments on it. To repair or rebuild your credit report we have set up a step by step guide to walk you through the process of improving your credit score.

Q. How do you build new credit when no one will give you a loan?
A. Start with charge accounts at stores or service stations. Many people get secured credit cards. Public Savings Bank and Applied Bank have secured cards to help you get started. You can even arrange to have your good rental history reported to improve your credit score.

Q. Will I be able to buy a car?
A. Vehicle loans may be obtained by putting a large percentage of the price down as cash up front. Expect to shop several banks or auto dealers to find someone willing to loan money to someone with bad credit, but it can be done.

Q. Can I buy a house?
A. Probably, but the level of your credit will determine who you should look to for a mortgage.


Q. What choices will I have?
A. It will depend on how bad your credit has become. With good credit or minor flaws the lowest rates, smallest down payments and most prevalent today are what I call federal secondary market loans.

Q. What is a federal secondary market loan?
A. These loans may be made by a mortgage company or a local bank. Soon after the loan closes it sells to an investor in the "secondary market", most times these loans end up with a governmental agency like HUD, Fannie Mae or Freddie Mac. To qualify for these loans you need good credit.

Q. What if I have black marks on my credit?
A. Some local banks make mortgages they keep "in-house", this means they will not be sold in the any secondary market. These loans may carry higher rates and larger down payment requirements but you will always deal with your local banker who might be willing to take a more lienient approach to your credit history. Be sure to ask if the bank keeps their loans "in house" when calling for information. These may also be called "portfolio" loans.

Q. What if all banks turn me down.
A. There should be mortgage brokers in your area specializing in making loans to people with bad credit. Expect these rates to be higher and down payments needed up to 25% to 50%, but even those with bankruptcies and the nastiest credit will be eligable. I have prepared a directory of these lenders on a page called Alternative Mortgage Sources USA or click here for more information and an online mortgage request form. Depending on how your credit looks these loans may be only a bit worse than those offered by banks. I have other directories for firms making auto loans to those with flawed credit and lenders working with commercial borrowers and small businesses. If you need a credit card try this site.

Q. Can these people who advertise they can fix my credit instantly or get me a new credit history really do it?
A. In most cases no. Many people have mistakes on their credit report, I have found them on my own report. Real mistakes can be removed on your own. If you need help or can't do this yourself perhaps some of these professional credit repair firms can help or use the automated online tools in our own credit help guide. Legitimate bad credit reporting only goes away by seven years passing from the date of the last activity or fraud. I have seen many of these quick credit fix places resort to this second method, or do nothing but take your money. In either case be very, wary of these credit repair scams.

Q. So I am Stuck with bad credit for 7 years?
A. Not at all, developing new good credit lines can overtake and overshadow your bad credit in time.

Q. How long does that take?
A. Depending how bad your credit has gotten 1-4 years should of hard work should get you to the point that you can obtain most loans. If you do nothing at all it may take 7 years for the bad credit to go away. You need to get aggressive about improving your credit score.

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For information on reaching Mory Brenner, Esq. please visit the contact page. For more debt options visit Fix Debt.

Nothing contained herein should be construed to constitute advice for your personal circumstances. This is intended as a peripheral exposure to the various options available, but by no means is this a comprehensive or exhaustive analysis of the bankruptcy laws or their alternatives. Whether or not you should file a Chapter 7 bankruptcy, Chapter 13 bankruptcy, or any bankruptcy, will vary depending on your personal circumstances and should only be undertaken after careful consideration, analysis and after consultation with an attorney experienced with such matters. These pages may contain information and rules peculiar to the Commonwealth of Massachusetts.

This material may be considered advertising under the rules of the Supreme Judicial Court of Massachusetts.

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The most recent update of this page occured on 12/14/09.