You’ve filed a bankruptcy in Georgia, and now you want to settle down and purchase a house. Contrary to popular belief, filing bankruptcy is not going to destroy your credit for life. While it is true that filing for bankruptcy will ding your credit to the tune of about 150 points, you will begin to receive credit card offers from lenders soon after you receive your discharge. Why, you ask? Because if you receive a discharge under Chapter 7, you cannot receive another discharge to wipe out your debts for another 8 years. Taking a credit card offer is not always the best option for someone who just got out of debt, so only apply for a credit card if you have the discipline to pay off the balance in full every month. Here are a few things you can do to reestablish your credit to qualify for a mortgage at a decent rate:
1. Pay Your Bills on Time
This is the most important step you can take in rebuilding your credit after bankruptcy. Rent, utilities, and any payments you may continue to have throughout your bankruptcy, such as your home mortgage and car note, should always be paid on time. I recommend setting up automatic payment deductions for all expenses so you don’t even have to think about it. Payment history is one of the most important factors in determining your FICO score, so never make a late payment.
2. Take a Credit Card Offer, ON ONE CONDITION!
Everyone falls on hard times, and after bankruptcy, you will have credit card offers coming in the mail. If you absolutely know that you will pay off the balance in full every single month, then apply and use this to your advantage. This is a quick way to rebuild your credit after filing a Georgia bankruptcy. I recommend charging only one item per month on this card in the beginning, such as your cable bill or your car’s gas usage. If you pay it off in full every month, charge a little more.
3. Cash is King
If you want to purchase a house, cash will always be king, and saving up for a 20% down payment will make it much easier to qualify for a mortgage with an interest rate you can afford.
4. Verify Your Credit Report
Four months after your bankruptcy case closes, check your credit report to ensure that any pre-bankruptcy charges are still includes and talk with your attorney about disputing them.
5. Get a Second Card
If you prove to yourself that you can pay off the entire balance on the first card at the end of each month, apply for a second credit card and do the same.
A Chapter 7 case is a “liquidation” proceeding in which the Chapter 7 trustee is tasked with the administration of your case. The trustee’s job is to maximize the amount of property in the bankruptcy estate for the benefit of unsecured creditors. The bankruptcy estate is defined as all legal and equitable interest the debtor has as of the date of filing. The estate is subject to the control of the trustee, and the trustee has the ability to reach back and void certain transfers that were made prior to a debtor filing bankruptcy. A common scenario is when a debtor transfers title to a residence to his or her spouse or child shortly before filing. Some debtors will attempt to be clever and transfer a residence to a family trust a few months before filing. None of these techniques will work to exclude your residence from the grasp of the Trustee. Under Section 547 of the bankruptcy code, the Trustee may avoid any transfer of property to an insider (family member or business partner) made within one year of filing.
Think you can just wait a year and be safe? Think again. Under Section 548 of the bankruptcy code, the Trustee may reach back two years if he can prove that the transfer was made with the intent to hinder and defraud creditors. The aforementioned code sections are called Preference sections, and they were enacted to prevent the “preference” of the debtor to pay one creditor over the other. The entire bankruptcy system is designed to give the Debtor a fresh start and an equitable distribution to each unsecured creditor.
It’s important to understand that, once you file for bankruptcy, an automatic stay is put into place that prevents creditors from taking action against you or seizing your property during the proceedings. Regardless of whether you file for Chapter 11, Chapter 12, or Chapter 7, an automatic stay can provide crucial protection as you seek relief from unmanageable debt.
Specifically, the automatic stay in bankruptcy can help by stopping:
There are, however, certain circumstances in which an automatic stay may not help. For example, while the stay will prevent the IRS from seizing your property or issuing a tax lien, you may still be audited by the IRS or sent a deficiency notice. In addition, bankruptcy does not stop required child support. alimony payments or criminal proceedings.
In some cases, a creditor may be able to request that the automatic stay be lifted. In order to do so, the creditor must submit a motion to the court explaining why the stay should no longer be in place. If the court grants the motion, the creditor can move forward with their collection efforts.
If you filed for bankruptcy and your case has been dismissed within the last year, the automatic stay will only remain in place for 30 days, absent obtaining Court approval for an extension. Additionally, an automatic stay is not permitted if you’ve filed for bankruptcy three times in a year.
The knowledgeable bankruptcy attorneys at Rountree Leitman & Klein LLC assist clients throughout Georgia who are seeking relief from creditors and debt through bankruptcy. Call 404-737-9623 or contact us online to schedule a free consultation in our Atlanta office.
Rountree Leitman Klein & Geer, LLC's blog is a resource provided to clients, prospective clients, and colleagues that discusses issues related to Personal Bankruptcy, Business Bankruptcy, Collections, and Litigation.