I learned a ton of great information from Tom Kish about how to get business credit during Week Two of the Credit and Debt Summit.
How to Get Business Credit
Tom Kish is the author of Shortcuts to Money, and he’s one of our experts at the Credit and Debt Summit. Basically, Tom teaches people how to get business credit, and then he teaches them how to use it to expand their businesses.
Here are three highlights:
The first secret about how to get business credit is this: Don’t apply in your own name. A lot of entrepreneurs walk into a bank and fill out a business loan application using their own name. Kish says the banks will basically laugh in your face if you do this.
Banks want to do business with LLCs, S-Corps, and C-Corps. Banks know that corporations might buy insurance products through the bank, they might build investment accounts or retirement accounts, or they might process their merchant services through the bank.
And being a sole proprietor—even one with a Fictitious Business Names or “DBA”—just doesn’t cut it, says Kish.
But if you register your business as a corporation or formal partnership, the banks will practically salivate at your door.
The second secret about how to get business credit is this: Keep your personal credit score high. A lot of lenders will look at the owner or principal’s credit score when considering a loan application.
This doesn’t mean that you should apply for business credit under your own name. Once again, you absolutely should not. It does, however, mean that your personal credit score might be considered as part of the overall process.
So if you have a bad credit score, be sure you know how to build credit. Namely, get your outstanding debt as low as you can, pay your bills on time, and scour your credit report for errors. (Be sure to come back later for some hot information from Brian Diez about errors on your credit report!)
And the third secret I’ll share is this: Apply for more than one loan. Let’s say you have a business registered as a corporation and you want a $150,000 line of credit. Instead of applying for one big loan, try breaking it into three or four loans that add up to $150,000.
You will have much more success if you start by looking for a bank that will provide you with $30,000 or $40,000 line of credit. Once you secure this loan, apply for another one. And then another.
Heck if you are just getting started, apply for a $5,000 line of credit. Get your foot in the door and get the ball rolling.
One thing you should know about how to get business credit is that getting the first loan is always the hardest step, especially if you don’t have any assets or much history. Look for a bank that provides “stated income” loans that are unsecured. This means that you won’t have to provide tax returns, collateral, or a business plan.
Category: CREDIT BLOG
Buying a Home With Bad Credit and No Money Down
From bird-dogging to seller financing, Carter Brown kicked off the Credit and Debt Summit with six strategies for buying a home with bad credit and no money down. Even if you have a bad credit score and no down payment, Brown explains the six strategies for buying home, or investing in real estate.
Buying a Home with Bad Credit and No Money Down
Carter Brown is a real estate coach for Prosper Learning who started investing in real estate while he was in college. He now coaches other people on out-of-the-box strategies for buying homes or investing in the real estate market. These strategies don’t require any money down, and they can be used by people with bad credit scores.
As part of the Credit and Debt Summit, Brown shared these strategies with registrants:
- Assigning contracts
- Double-escrow closing
- Subject to financing
- Seller financing
- Lease options
- Bird-dogging
Two of the highlights are “subject to financing” and “bird-dogging. “
Buying a Home with Bad Credit and No Money Down Strategy: Subject to Financing
Subject to financing is a perfect strategy for buyers with bad credit and no money down and sellers who are on the brink of foreclosure. It works like this:
The buyer takes over mortgage payments on a person’s house. In exchange, the seller transfers the title to the buyer, but—and here’s the kicker—the seller keeps the loan in his or her name. The buyer, however, starts making payments on the home.
Does this sound crazy? Why in the world would a seller transfer title but keep the loan in his or her name?
It isn’t crazy, and Brown explains why it works;
1. The homeowner (seller) is going to lose the home to foreclosure otherwise. Under “subject to financing,” the seller doesn’t have to go through foreclosure and preserves his or her credit score. Perhaps more importantly, the seller’s financial stresses are over. No longer do they have to worry about coming up with thousands of dollars, negotiating with banks, attempting—and failing—to get loan modifications. The buyer can take over payments immediately, leaving the seller with peace of mind.
2. The buyer and seller can always write a clause into the contract that forces the home to return to the original owner in the event that the buyer misses a payment. And because the loan is still in the original owner’s name, the seller can track the buyer’s payments.
3. Worst-case scenario, the buyer misses a payment and the home returns to the original owner. If this happens, the original owner can start making payments if his or her financial situation has improved. If the original owner’s financial situation has not improved, he or she is no worse for the wear.
Obviously, this strategy is a bit sophisticated. Want the transcripts of Brown’s Credit and Debt Summit webinar? Register for the free summit here and get more details, including information on where you can find qualified sellers.
Buying a Home with Bad Credit and No Money Down Strategy: Bird-Dogging
If “subject to financing” makes you nervous, but you still want to get your foot in the door and start learning advanced techniques for real estate investing, Brown suggests starting with a technique he calls “bird dogging.”
Under this strategy, you don’t actually buy a home, but it allows you to shadow someone who is using outside-the-box strategies, which means you can quickly move up the ladder and start learning about buying a home with bad credit and no money down.
Simple put, bird-dogging is another way of saying that you act as a scout, and you get paid for bringing a seller and an investor together. You also get to shadow the investor so that you learn more about real estate investments.
Let’s say that you are chatting with your neighbor, and you learn that she and her husband are in financial distress. Their house has been on the market for months, but no one is biting. If something doesn’t happen—and soon—the bank is going to foreclosure.
This is where you come in. Simply introduce your neighbor to a real estate investor. Tell the investor that you want to provide a referral for a finder’s fee. If the investor purchases the property, you will receive a fee of about $500.
This isn’t where it ends. Ask the investor if you can shadow the transaction. Let the investor know that you are interested in learning more about real estate strategies. The investor, thrilled that a hot deal has dropped onto his or her lap, will agree.
Brown goes on to describe four other strategies for buying a home with bad credit and no money down. His strategies offer something for everyone—from the seasoned investor to the newbie hoping to get his or her feet wet.
The Retail Store Credit Card Scam
Been hit up lately by sales clerks promising big savings if you apply for a retail store credit card?
Just about every major clothing, electronics, and department store offers a similar promotion: In exchange for applying for a retail store credit card, you will get a discount, coupons, or special offers reserved for cardholders.
But if you apply for a store-specific card, you will most certainly not save money. And you just might hurt your credit score, too.
Never Apply for a Retail Store Credit Card!
Let’s take a look at a typical interaction at a department store. Imagine that you walk to the cashier with your loot in hand—in this case, let’s say you are buying a shirt and a pair of socks for a total of $62.
The cashier immediately makes you an offer.
“Do you want to apply for a retail store credit card? You’ll save 15 percent on today’s purchases.”
Heck yes! you think, gung-ho to save $9.30.
But the cashier isn’t telling you a few pertinent pieces of information. Let’s take a look at two of the critical facts you should know before applying for a store-specific credit card.
Never Apply for a Retail Store Credit Card
Reason #1: You will pay more than you save.
Many stores promote their retail store credit card by offering a one-time discount on same-day purchases. But you will most certainly end up paying more than you saved. The banks and the retail stores promoting these store-specific credit cards are counting on you spending more money so that they can recoup that discount, and then some.
Consider all the ways the banks and the retail stores can make money off you:
1. If you are given a one-time offer to save on today’s purchase, you just might pile a few more items into your shopping card.
2. In the future, you will be more likely to engage in a little “retail therapy” if you have store-specific credit cards in your wallet.
3. You will be sent coupons and special offers that entice you to the store. Ever bought something just to take advantage of a coupon?
4. And, of course, you will pay interest and fees on the credit card.
Suddenly, that $9.30 savings doesn’t seem worth it, does it?
Never Apply for a Retail Store Credit Card
Reason #2: Your credit score might suffer.
I can think of three reasons your credit score might suffer from a store-specific credit card:
1. Keeping these cards active can be tough.
2. You might end up with too many credit cards.
3. You will definitely add a credit inquiry to your credit report.
Let’s start with the first reason: Keeping these cards active.
An important part of learning how to fix credit is to have the right number of credit cards. To earn the highest credit score, you should have between three and five revolving credit cards. And these credit cards should be active.
Credit-scoring bureaus want to know that you can responsibly manage your credit cards. If you let your credit cards go inactive, the bureaus have no idea whether you are able to manage balances and debt. In other words, inactive credit cards do nothing for your credit score.
But keeping a retail store credit card active can be tough. Are you going to buy a lawnmower from Sears each and every month? Are you sure you need a new Gap sweater twelve times a year?
Most likely, you will either keep the card active by making unnecessary purchases (which costs you money), or the card will go inactive. Either way, it’s bad news.
Let’s talk about the second reason a store-specific card might hurt your credit score.
Like I said, the credit-scoring bureaus are the happiest if you have the right number of credit cards. If you do not have at least three credit cards, they don’t have the information they need to make a judgment about whether you are responsible. If you have more than five credit cards, they know that you are in danger of getting in over your head.
Three to five is the sweet spot. So if you are limited to just three to five credit cards, why waste one on a card that will only be accepted by one merchant? You cannot reserve a car using your Banana Republic card, but you can purchase a suit from Banana Republic using a Visa.
Too often, people apply for retail cards each time they are offered a discount. These people must also carry American Express, MasterCard, and Visas for everyday expenses, traveling, and business needs. And they quickly find themselves carrying a lot more than five cards.
Finally, let’s talk about the third reason a retail card could hurt your credit score: credit inquiries. Ten percent of your credit score is based on the number of credit inquiries you have on your credit report in the past year. If you apply for a retail store credit card, your score could drop a few points, and this could cost you a lot of money in interest on future loans and credit cards.
Of course, department stores and banks will never tell you to avoid retail store credit card offers! Be sure to learn more of their secrets by downloading our free ebook: 35 Important Facts the Banks Won’t Tell You About Credit.
Automobile Loans After Bankruptcy
Qualifying for automobile loans after bankruptcy might seem daunting and impossible. It may seem that any hope of returning to normality or obtaining something as basic as an auto loan may be completely out of your reach. However, one of the important bankruptcy facts to keep in mind is that by implementing some stiff changes in your behavior and budget, you can repair credit after bankruptcy and expand your opportunities.
Once you exit the bankruptcy process, you may need to acquire a car. Bankruptcy will be a major impediment to your goal, but you do have options. The first and best way to get automobile loans after bankruptcy is to begin to learn how to fix credit after bankruptcy, building up your score high enough to enable you to get a good loan. With bad credit, you may only qualify for a loan with a high interest rate, which will only encourage the likelihood of default or another precarious financial tailspin.
If your need to acquire a car is more urgent and you cannot wait to rebuild your credit and qualify for automobiles loans after bankruptcy, you have several options, most of which can net money that you didn’t know you had. Start by tracking your expenses and learning how to create a budget. You might be able to get rid of several costly items that are draining your money: $5 lattes, valet parking, and even eating out several times a week. Just by picking up some skills behind the stove, you might increase your income by $30 a week. By taking a second job, you will lose some free time, but you can add $300 to $500 a week with a part-time, minimum-wage job. You may not want to work 60+ hours a week forever, but if you are able to afford a new car, it might be worth it for a little while.
Another opportunity for adding to your income can come by asking your boss for an advance on your paycheck. Your employer may be more likely to grant you a loan, plus these type of loans usually don’t have any interest attached to them. However, before you ask your boss for a raise, be prepared to answer some of these questions, including the reason you need the loan, how you will repay it, and why his company should consider doing this. You might also ask a family member to grant you automobile loans after bankruptcy, and you should expect to give them the same solid reasons for giving you the money, maybe even by offering better interest rates than they are accumulating in a savings account.
Credit unions and local banks are also great places to obtain automobile loans after bankruptcy. They may be likely to offer you better terms and lower interest rates than a mainstream lender, particularly if you have already have established a relationship there.
You can consider obtaining a co-signer for a loan, though you will have to give them some special provisions to safeguard the risk they will be absorbing. For example, you might consider giving them the ability to control the payments or access the account online so that they will feel more confident. Though it is a risk, you could offer to pay the co-signer two or three months in advance. They could just take the money and run, but when have poor credit, you don’t always have the luxury of perfect solutions.
Credit repair always your best option. However, if you take a look at your situation and recognize the opportunities around you, you may find plenty of opportunities for automobile loans after bankruptcy.
Bankruptcy and Student Loans
Those looking to wipe the slate clean and start anew might be disheartened to learn the bankruptcy facts about bankruptcy and student loans.
As you review your assets in preparation for bankruptcy, you may be wondering how many debts you will be able to discharge. If you are like most people, you might still have some student loans left to pay. Unfortunately, the law surrounding bankruptcy and student loans states that you cannot discharge your student debt obligations in a bankruptcy filing.
Bankruptcy and Student Loans Fact #1: You cannot discharge student loans in a normal bankruptcy.
Even though you can have credit card, mortgage, and auto loans discharged during bankruptcy, some debt obligations will stay with you through bankruptcy. You are still responsible for paying alimony, child support, taxes, fines, and student loans through the bankruptcy process. Like the other listed responsibilities, student loans are considered exempt from the bankruptcy process, whether they are federal loans or private student loans. In the case of federal student loans, the government can seize your tax refund or garnish your wages to make sure it collects its money.
In a few situations, student loans can be legally discharged, but they are rare. If you die or are declared 100 percent disabled, your student loan debts will be discharged, and your estate will not be responsible for your debts. In the case of disability, your credit score will not be harmed by the student loan discharge. If you attended a school that closed before you were able to complete your academic program, your student loans will be canceled, relieving you of the responsibility to repay them at all.
Bankruptcy and Student Loans Fact #2: You can request a hardship hearing.
When it comes to bankruptcy and student loans, you should also know this: You can request a hardship hearing during your bankruptcy and present your case to a special judge, requesting that the student loans be discharged. A discharge of student loans after a hardship hearing is extremely rare, but if you think you have a good reason why paying your school loans presents a hardship, talk to a qualified bankruptcy attorney.
Remember, though, that everyone declaring bankruptcy is having a hardship, so your situation will need to be particularly dire. Getting your student loans discharged is a little like getting out of jury duty!
Bankruptcy and Student Loans Fact #3: Some federal programs will pay your student loans for you!
Another interesting fact about bankruptcy and student loans is that you might be able to discharge your student loans by participating in federal programs that relieve some or all debt obligations in exchange for working in programs like Peace Corps, AmeriCorps, or Vista. These service programs might give you a flat amount of money or they could offer to shave a percentage off your loans. By serving in Vista or the Peace Corps, you won’t be making much money, but you could be relieved of as much as 15 percent of your student loans.
If you are currently struggling to repay your student loans, make sure you explore your bankruptcy options before defaulting, including debt consolidation loans. If you talk to your lender, you might be able to arrange a loan deferment or a forbearance, which grants you temporary relief by postponing your loan payments for a specified period of time. You can also work out a different payment plan with your lender to help you make payments every month. Remember that removing a student loan is all but impossible, so you might as well start finding ways to repay your student loans as soon as possible.
If you are struggling with bankruptcy and student loans, it stands to reason that you might have a poor credit score. One way or another, start learning how to build credit so you can build your credit score to 720 as quickly as possible.
Obtaining a Loan After Bankruptcy
Bankruptcy can be a staggering blow to your financial stability as well as your confidence, and you might think you will never qualify for a loan after bankruptcy.
Let’s start by talking about the bankruptcy facts. If you are like most people, you might feel hopeless and embarrassed. But declaring bankruptcy does not brand you a failure. Some prominent people who have filed for bankruptcy include Donald Trump, Walt Disney, and Henry Ford. As long as you dedicate yourself to fiscal restraint and learn about credit repair after bankruptcy, you can rehabilitate your credit score in a few years.
In fact, a careful campaign of credit improvement can even help you get a personal or business loan after bankruptcy in relatively short order. Follow the tips below and you will be well on way to obtaining a loan after bankruptcy.
Though a bankruptcy will severely damage your credit score, it also gives you a chance to rebuild your finances without looking over your shoulder and worrying about creditors. After filing for bankruptcy, your credit score will bottom out, and you will need to begin acquiring lines of credit and slowly improving your score. But first create a structured plan for recovery that allows you to work within your limits. Obtain a copy of your credit report and make sure all debts have been marked as “discharged through bankruptcy” and that all your accounts have a balance of zero.
Next, open new lines of credit so that you can demonstrate a newfound ability to responsibly manage your debt. Because credit-scoring bureaus place more weight on recent credit activities than your past history, your credit score will begin to rebound as creditors recognize a regular pattern of timely payments. Opening up lines of credit may be difficult at first, so you might need to use secured credit cards or become a credit card authorized user.
A secured credit card requires you to provide a cash deposit or access to a savings account as collateral for a new card. Secured credit cards frequently have high interest rates and low limits, but if you can create a history of responsible behavior, you’ll be able to transition to a regular card with corresponding benefit to credit score.
Another way to improve your credit score so that you can qualify for a loan after bankruptcy is to have a family member with good credit add you to an account as an authorized user In essence, you are borrowing this person’s good credit to improve your credit rating.
Soon after a bankruptcy, you will probably have to offer collateral to obtain a loan. If you have a car or a property, this could be enough to ensure a loan after bankruptcy. If you do obtain a loan without collateral, the odds are that interest rates will be relatively high. You can also accelerate your chances to secure a decent loan by making a sizable down payment. Like offering collateral, this offer will gain your valuable credibility and will help to reassure the lender that you will be able to carry through on your loan payments.
Though bankruptcies once prevented borrowers from receiving loans for 10 years, or the time it takes for a bankruptcy to be erased from your record, you may now be able to obtain a personal or business loan after bankruptcy within two years, providing you are assiduous in carefully building your credit. Be sure to create a plan for yourself and start a new, healthy pattern of promptly paying your debts on time by learning how to fix credit.
Credit Inquiries After Bankruptcy
If your credit score is trashed, the last thing you probably want on your credit report is a bunch of credit inquiries after bankruptcy. Won’t this tell the credit-reporting bureaus that you are planning on returning to your old habits?
To some extent, yes. Each time you apply for credit, a creditor makes an inquiry into your credit report, and this causes your score to drop. One of the bankruptcy facts is that the credit-scoring systems will be keeping an eagle-eye on your behavior, and applying for credit is a big warning sign that you are up to your old habits.
So what are your supposed to do? Live as a cash-only citizen? This might sound good in theory, but it is highly impractical. You can barely get a cell phone without a credit card, much less reserve a hotel room or a rental car.
The truth of the matter is that credit inquiries after bankruptcy are a necessary part of building credit. The key is to be strategic about how you open new lines of credit and deal with credit inquiries.
The strategy might shock you. In short, your strategy should be to get it over with. Apply for all the credit you will need, and get all the credit inquiries on your credit report at once. I have three reasons for this:
Credit Inquiries After Bankruptcy—Fact #1: You need to start to repair credit after bankruptcy as soon as possible. This means you need to open credit cards, and you need to start building a positive credit history that shows the credit-scoring bureaus that your bankruptcy allowed you to start anew.
Credit Inquiries After Bankruptcy—Fact #2: Credit inquiries stay on a person’s credit report for only two years, but they affect a person’s score for only one year. If you have declared bankruptcy, your credit score is already trashed. Get the credit inquiries over and done with now rather than waiting to tarnish your credit report later. In fact, the only way to get your score to increase is to apply for credit and use it wisely.
Credit Inquiries After Bankruptcy—Fact #3: Every time you open a new account, the average age of your credit history drops. And credit-scoring bureaus like older accounts more than they like newer accounts. If you apply for new credit today, the accounts will be a year old this time next year. If you wait to apply for new credit, the accounts cannot start growing old because they do not exist.
Let’s take a look at how this works by considering Andy and Bob. Both of them have declared bankruptcy. Both of them decide to open three new credit cards as part of their plan to rebuild credit. But they go about it differently.
Andy decides to just get it over with, so in 2010, he opens three credit cards. By 2013, the inquiries had fallen off his credit report. And the average age of his credit accounts was three years.
Bob decided to open the credit cards in stages. He knew that credit inquiries count for about 10 percent of a person’s credit score, so he wanted to space out the damage. By 2013, he had three credit cards: one that was a month old, one that was 13 months old, and one that was 25 months old. The average age of his accounts was just 13 months. And he had a recent credit inquiry that was being factored into his score.
And guess who had the better score? Andy, who knew that credit inquiries after bankruptcy were necessary.
One thing to keep in mind about credit inquiries after bankruptcy: Your score will never be damaged if you pull your own credit report. The credit-scoring bureaus know that people need to monitor their own credit scores, and they consider this responsible behavior. If you need to pull your credit score, be sure to read this article about the credit score scale.
How to Remove a Bankruptcy From Credit Report
Question: Can you give me the specifics on how to remove a bankruptcy from credit report?
Answer: This blog post is going to be completely different than every other blog about how to remove a bankruptcy from credit report.
Let me begin with one assumption: Your bankruptcy is legitimate, meaning that you are not some victim of identity theft whereby the bankruptcy on your credit report belongs to someone else.
With that assumption, here is my answer: You cannot get it removed, and you should not worry about getting it removed. Let me explain.
1) You don’t need to learn how to remove a bankruptcy from credit report. Most people think that after bankruptcy, your credit is ruined for seven years. That is simply not true. If you reestablish your credit properly after bankruptcy, you can have a 720 Credit Score in just two years after the bankruptcy.
2) If you go through the process of finding out how to remove a bankruptcy from credit report, you will run into lots of unscrupulous organizations who will charge you to have the bankruptcy removed. The organizations that tell you that they can remove a bankruptcy from your credit report often offer a “100% money back guarantee.” The truth is that you won’t be able to get your money back. There are no legal ways to remove a legitimate bankruptcy from your credit report, so save you money and avoid these scams.
3) That’s right, it is illegal. According to the FTC, it’s illegal to get an item off your credit report that is correct.
Here is the one simple solution that works every time: Reestablish your credit after a bankruptcy the same way you established credit the first time. Just start now, don’t wait even one day.
Learning how to fix credit is simple, just keep in mind that it’s going to take you between 18-24 months to get a credit score over 720 assuming you do it the right way. The biggest mistake people make is wiping their hands of all credit.
I would love to offer (free of charge) my video series on how to build credit and reestablish credit after bankruptcy. If you find my information valuable, then you can enroll into my program on establishing credit after bankruptcy.
Rebuilding Credit After Bankruptcy
Like a lot of folks who start trying to rebuild credit after bankruptcy, you might be thinking of wiping your hands clean of credit. And it might make sense that the fastest way to move past the bankruptcy is to stop relying on the loans and credit cards that precipitated the bankruptcy.
But contrary to popular belief, using credit appropriately in the wake of a bankruptcy is the best way to rebuild credit after bankruptcy. Of all the bankruptcy facts, this one might be the most important. Indeed, you might be able to build your score to 720 within a couple of years of declaring bankruptcy if you follow a smart plan to re-establish credit.
This twofold plan to learn how to fix credit starts by opening new lines of credit and concludes with paying your bills on time and in full.
Rebuilding Credit After Bankruptcy Rule #1: Open new lines of credit!
You might hear claims that you can have a bankruptcy wiped from your record. Beware of these claims! There is no legal way to wipe a bankruptcy from your credit report. That said, time does heal. The credit-scoring bureaus—Equifax, TransUnion, and Experian—are more concerned with your recent behavior than they are with your past behavior. The trick, then, is to persuade the bureaus to pay more attention to your recent good behavior than to your past behavior. By establishing new credit and using it responsibly, you can prove to the bureaus that you are a new person—that the bankruptcy forced you to change your habits and establish smarter financial strategies.
After you have declared bankruptcy, open three new credit cards (Visa, MasterCard, or American Express) and one installment loan as part of your plan to rebuild credit after bankruptcy. Taking out a car loan is not advisable, in part because of the high interest rates you would assume, but also because of the debt you would add to your credit report. Instead, buy a new appliance, piece of furniture, or electronic using an installment loan. Then pay the loan off within six months.
Keep the credit cards active by using them at least every other month. Make only small charges (preferably less than 10 percent of the limit), and pay the balances in full.
Of course, with both the credit cards and installment loan, be aware of high interest rates. Because of your bankruptcy, you will likely not qualify for the best interest rates, which is why I stress the importance of paying the balances in full as quickly as possible.
Another note about opening new accounts: Insomuch as it is possible, open these accounts all at once and as soon as possible after the bankruptcy. The credit-scoring bureaus respond best to accounts that have been open for long periods of time. Your future credit score will benefit best if you open the accounts now.
By opening these new lines of credit, you can begin to rebuild your credit after bankruptcy by giving the credit bureaus new information on which they can judge your creditworthiness. Show them you have changed your patterns of behavior.
In this way, you can immediately begin proving to the credit bureaus that the bankruptcy allowed you to turn over a new leaf and change your payment behavior.
Rebuilding Credit After Bankruptcy Rule #2: Never, never make a late payment!
After a bankruptcy, the credit-scoring bureaus will have an eye on you, even as your score begins to climb. If you make a payment that is even one day late, the bureaus will assume you are back to your old ways, and your progress will be for naught.
To best rebuild your credit after bankruptcy, you must pay your bills immediately every single month. This means that you must live within your means. Be sure to read our article about how to create a budget, find money, and establish habits that best afford you to bounce back after a bankruptcy.
How to File for Bankruptcy Without an Attorney
In an earlier post, we talked about how to find a good bankruptcy attorney to handle your bankruptcy; this week, we take a look at how to file for bankruptcy without hiring an attorney.
If your debts have grown too large to handle and you are constantly hounded by creditors, declaring bankruptcy may be the best way for you to make a new start. Most people hire an attorney to usher them through this confusing and complex process. An experienced bankruptcy attorney can also help debtors avoid costly mistakes or the forfeiture of their rights.
However, if you are financially strapped, you might be looking into how to file for bankruptcy without an attorney. This is called filing pro se.
The first thing you should know about filing pro se is this: Bankruptcy has serious long-term legal and financial ramifications. Before you decide to file pro se, make sure you do thorough research and avoid making mistakes that can deepen your financial problems. At a minimum, follow these six steps:
- Thoroughly research your bankruptcy options with respect to the different forms of bankruptcy available. Individuals usually file for either Chapter 7 or Chapter 13. Chapter 7 involves a liquidation of most of your assets to pay off your creditors, while Chapter 13 bankruptcy can mean working out a payment schedule with creditors, which may enable you hold on to your house or car. In our free teleseminar, we offer more information about the different types of bankruptcy that are available, as well as the pros and cons of each.
- Do your homework. if you want to learn how to file for bankruptcy without an attorney, be sure to read up on the United States Bankruptcy Code and Federal Rules of Bankruptcy Procedure, as well as any rules in their state. Each state has different bankruptcy filing procedures and rules, so you will need to do some research to find out the specific items required for your state. Visit your local court’s web site to become aware of any relevant bankruptcy procedures in your area.
- Schedule credit counseling. If you declare bankruptcy, you must first undergo credit counseling within 180 days prior to declaring bankruptcy. After completing counseling, you must furnish a certificate of completion from an approved provider.
- List all your debts. You must provide an account all your debts and assets in your bankruptcy schedules as part of form B200. If a debt is not listed, it may not be discharged, so be careful to carefully list all debts, account numbers, and the name of the creditor. A bankruptcy judge is able to deny the discharge of debts if you destroy, defile, or obscure properties; fraudulently change records; or fail to tell the truth about assets. (Knowingly presenting false information during bankruptcy is considered a crime.)
- Watch out for problems. Filling out bankruptcy paperwork may seem relatively simple but avoid errors that could prove costly or cause your case to be dismissed. Make sure to list all your property, including assets like tax refunds and retirement funds and even intangible assets such as stock options and partnership interests. You should be careful not to bend the law in trying to transfer your assets to friends or relatives. Also, you may be able to find available exemptions for some of your assets.
- Seek legal help if you are unsure of any step along the way. If the process of learning how to file for bankruptcy without an attorney seems daunting or unclear, consider obtaining a bankruptcy attorney during and before the legal process. Many states offer free legal aid to debtors without financial resources, and you might be able to find a legal clinic or organization in your area that offers discounted legal assistance. Of course, you should always be on the lookout for bankruptcy scams!
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