Best Credit Card Practices Before Filing Bankruptcy

Credit cards are a creature of convenience. Unfortunately, they are also a creature that can eat away at your finances if left untamed and can easily force hardworking families into bankruptcy. While many families survive on the short-term credit lines offered by these scavengers immediately prior to filing bankruptcy, section 523 of the Bankruptcy Code provides a mechanism for creditors to object to their debts being discharged in bankruptcy if the debtor charged $500 or more of luxury goods or services within 90 days of filing. The debt is considered fraudulent under the theory that the debtor charged an item on the credit card without an actual intent to repay the charge. If you plan to file either Chapter 7 or Chapter 13 (or an individual Chapter 11) bankruptcy case in the near future, here is a list of actions NOT to take:

1. Do Not Use Credit Cards for 90 Days Prior to Filing.

The best method to ensure that a creditor will not red-flag your account is to simply not use credit cards during the 90 day period preceding your bankruptcy filing date. If you do, please make sure that you are only charging basic household expenses and not jewelry for the girlfriend/wife or Mediterranean Cruises!

2. Do Not Take Cash Advances.

Taking a cash advance from your account within 90 days of filing is a sure-fire way to receive an objection. The bankruptcy code provides that all cash advances for more than $750 within 90 days of filing will be presumed nondischargeable, which means that the debt will survive your bankruptcy, and the credit card company may sue you and garnish your wages despite your bankruptcy filing. Surprising to some, DO NOT transfer balances from one account to another during this time period either. Balance transfers are essentially cash advances, so any amount transferred will be presumed nondischargeable.

3. If you want to keep a credit card, pay down the balance to zero, but before 90 days of filing.

If you file Chapter 7 bankruptcy without paying down the entire balance on your card, the issuer is technically not a creditor and will not have to be listed on the bankruptcy schedules. Be wary of this practice, however, as any charges you make beginning the day of filing will not be wiped out in bankruptcy since the will be post-petition debt. If you must use a credit card post-petition, please only charge budgeted items and basic household expenses. Any only charge what you can afford to pay-off in full at the end of every month.

It Is Absolutely Possible To Get A Mortgage Post Personal Bankruptcy

Many people doubt that it is possible to get a home mortgage loan once you had filed for bankruptcy protection. It has become a "well known fact" that if a person had to file for bankruptcy protection, this person's financial status is ruined permanently, even though there is absolutely no truth to this statement. Many people believed that if they had filed for bankruptcy, they will never be able to get a credit card or a home mortgage for that dream house. To put your mind at ease, you should know that this is not the case. It is true that once you have filed for bankruptcy, your credit history will be tainted quite severely. But it absolutely does not mean that you will not be eligible for that credit card, or a car loan, or the mortgage loan on a house. Even though the financial institutions do not look favorably upon an individual once he or she had filed for bankruptcy protection, be rest assured, they will still want to give you that home mortgage loan.

Do not be despaired if you need to apply for any type of loan, even after you had filed for bankruptcy protection. You will definitely be able to get a loan, it will just take some time and effort on your end. Some financial institutions favor those people who had filed for bankruptcy than those who continued to struggle financially because of the heavy debt they still carry. It is entirely possible to get that credit card offer almost right after you had filed for bankruptcy protection. If I can do it, so can you. Just when I was fretting over how to rebuild my credit, 3 months had gone by since the filing and I received a unsecured credit card offer from Capital One Bank, and they extended the credit offer to me because they knew I had filed for bankruptcy protection. Granted, the limit on this card was only $750, but this gives me a chance to rebuild my credit. Having a low credit limit on the credit card definitely reminds me of what got me into trouble initially. Even though I was given a very low credit limit (as opposed to the high credit limit that I used to have), it forces me to learn to live within my budget.

Until you had to file for bankruptcy protection, you were probably one of those individuals who did not worry about how credit is affecting you financially. If you had been careful monitoring and reviewing your credit, you would most likely have avoided the need to file for bankruptcy protection. Now if you are looking to "rebuild" your life, you have to be vigilant about your finances. You will need to look to fix your credit report, rebuild your credit history and monitor your credit score almost religiously in order to put yourself in the position to be eligible for a home mortgage.

You cannot stress enough the importance of fixing your credit report

Credit report is almost as important as your social security. It identifies who you are financially. Having said that, you will want to have this report to be as accurate as possible. The industry accepted Big 3 credit bureaus which are Trans Union, Experian and Equifax should all have accurate credit reports on you. If you see that something in the credit report is not correct, you want to bring it to the attention of the credit bureaus immediately. Your creditors might have or have not reported to the credit bureaus as promptly as you would like, hence providing some inaccuracies to your specific credit report. If is of vital importance to fix the mistake(s) in your credit report as soon as possible. You can do this by following the procedure given by the specific credit bureaus to fix your credit report. Once you are able to remove the incorrect information on your credit report, you are one step closer to having this creditor drop from your credit report in 10 years if you have filed for Chapter 7 bankruptcy. Having an accurate credit report means that you will have eventually have better credit score, and better credit score translates into a better opportunity to get a favorable home mortgage.

Why is it important to rebuild your credit history?

One of the factors that can affect your future finances is the state of your credit history. You will want to have a strong credit history leading up to the time you are applying for that loan. If you have a clean and credit history which demonstrates a responsible usage of credit, it goes a long way when a future creditor is deciding whether to extend your the loan or not. Some people wonder how anyone can rebuild the credit history if they do not have access to any credit cards? If you really do not have any credit cards post bankruptcy filing, then look to get a secured credit card. A secured credit card is a prepaid credit card in which you can only spend up to the limit that you have prepaid for. Be smart about how you are using your secured credit card. Use it sparingly and pay off the balance right away. Once you can do that consistently, you will demonstrate that you are a good credit candidate through the good credit history you have established over time.

Having a decent to excellent credit score is vital to your financial health

Your credit score is just as important as your social security therefore I encourage you to check it at least once or twice a year. Credit scores go up and down just like the stock market, but you should know at all times what you scores are. If you find yourself with a system to raise your credit score and it consistently improves your scores, continue doing so. If you see a big dive in your credit scores since you last checked them, you will need to do some soul searching. Did you forget to payback a credit card balance one month, or did you continuously use up the credit line that you have been given? You can display an excessive spending habit if your credit report shows a constant credit check by the credit card issuers. If you can avoid such activities, you can avoid having a degraded credit score.

You can get a mortgage even if you have filed for bankruptcy protection

After filing bankruptcy, you still have many chances to own a home if you will take the necessary steps to fix your credit, which includes your credit report, credit score and credit history. Once you are able to obtain all the credit rebuilding process, you should be considered creditworthy for that mortgage or loan that you are looking for. Do not be despaired if you had to file for bankruptcy. It does not mean that you cannot be qualified for a home mortgage in the future. It does take a little bit of time to rebuild your credit, but it should be absolutely worth your time if you are looking to stabilize your financial position and to be qualified for a home mortgage loan.