It's too bad that many bankruptcy lawyers don't give their clients more advice about how to get back on their feet after filing for bankruptcy. Anyone who files for bankruptcy needs to take a few simple steps to get back on their feet financially.
You can fix your credit and get ready to buy a home by following the steps below.
- Pay your bills when they're due. Bankruptcy is a way to get back on your feet financially. It is meant to give you a financial "fresh start." After you file for bankruptcy, you need to pay all of your bills on time. If you have trouble paying a bill that's coming up, DON'T IGNORE IT. Most people make a mistake here. Call your creditors before they call you, and explain what's going on. If you can't get a reasonable person on the phone, ask for a supervisor. Again, do this as soon as possible, not the day the bill is due or after it is late. If you have trouble paying your bills, you might need to ask for help.
- Get things that look bad on your credit report taken off. For the items that were written off in your bankruptcy, you will need to send a copy (not the original) of your bankruptcy discharge papers to all three credit bureaus and ask them to remove these mistakes.
- Have a strong rental history that can be proven. This is pretty important, since it's probably your biggest monthly cost. The people who actually approve your loan, called "underwriters," will look very closely at how you paid your rent, since they will be replacing it with a mortgage payment of the same size or more. It's very important to have a clear record of how much rent you've paid in the past. If you rent from an apartment complex, the bank will only need to ask for a Verification of Rent (a.k.a. VOR).
- Get a copy of the report on your credit. Most of the time, the credit accounts that are wiped out when you file for bankruptcy do not get taken off your credit report right away.
If your landlord is a private person, the best proof is cancelled rent checks from the last 12 months. Banks can do VORs for private landlords, but they don't do it very often because they think the landlord might know the borrower and say what the bank wants to hear in order to help the borrower get a loan.
Please stop paying with cash or money orders and start paying with checks as soon as possible. Simply put, this is hurting you because you have already shown that you are not good with money by filing for bankruptcy. If you pay your rent with cash or a money order, it shows that you are even less stable financially. It also won't give the underwriter the good rent history they need to feel comfortable approving your loan.
- Apply for a secured credit card. With a secured credit card, you can put money into an account to secure a credit card and then borrow against it to start a new, good payment history. As time goes on, the bank might raise your credit line to a higher amount than your deposit and then give you back your deposit. (They usually give you interest on your deposit, too.)
- Don't give in to the urge (or the push) to buy a car. Some people might say that this is the best way to get your credit back on track. The problem is that your interest rate will be so high that your payments will make your debt ratios higher than usual, making it harder to get a mortgage. Do you remember that the bank will let you pay off your debts with 45 to 50 percent of your monthly income? This will be quickly used to pay for a car. Only buy a car if you need one (not just want one) and if you have enough money to pay for the car payment, any other debts you have, and the new car payment. We've seen MANY people who have cars instead of homes because they bought a car they couldn't sell and their debt levels were too high to get a mortgage. It would be a waste to have a nice car that loses value every day instead of a cheaper car and a mortgage on a home that gives you a tax break and goes up in value over time.
- Set up "non-traditional" trade references. These are accounts you pay for, like cell phones, car insurance, and store accounts, that would not normally be reported to a credit bureau. They can be used to show that you have a good payment history. If you can show that you have paid on at least three of these accounts for the past 12 months, it will help us show the bank that you are a good credit risk. The best way to prove this is with a letter from the company saying that you have been paying on time for the past year. You can also show 12 months of on-time payments by giving 12 months' worth of cancelled checks.
I hope this helps you find the home of your dreams.
