Interviewer: I’m sure a lot of people feel like they’re doomed, that they’ll never get credit again, so what can people do to start building their credit line once they’ve been discharged? What advice do you give to clients before and after filing for bankruptcy?
Andrew Campbell: As far as clients who are going to file for bankruptcy there are several pieces of information I give them.
The first thing they want to do is they want to organize themselves effectively. Get all of their important documents in order:
- last two years of all tax returns,
- all leases or mortgages,
- all car statements, titles and insurance documentation,
- copies of all garnishments or judgments, including judgments of divorce,
- copies of all bank statements for all bank accounts,
- last six months of pay stubs,
- all current bills,
- credit reports,
- pension, IRA, and retirement account statements.
Get bank records and receipts organized. This will allow you to fully understand your expenses. Making sure that you document all expenses can really help you out later on.
If you typically use a debit card going over your monthly statement can help you figure out your monthly expenses. This is the most difficult part of completing the petition.
Credit reports allow you to list all of your debts. You might see some debts that you believe you don’t owe. It is important to make sure you dispute that debt on your bankruptcy petition.
Third, if you know you are going to file then stop making payments to some of your creditors. Make sure you get advice from an attorney on which debts to pay and which debts to not pay.
Fourth, don’t use credit or get new credit. Don’t get cash advances.
Fifth, don’t do anything that would draw any creditors attention. Be careful about selling any assets you own or transferring any asset to another party. Be especially careful about giving things away to family members or making any loan repayments to any family members.
Creditors know that you will want to prefer certain creditors over others. Naturally, there is more social pressure for the typical person to pay back a family member. The trustee, the attorney for the creditors will ask you whether you have made any loan repayments to any family members in the last year.
The trustee will pursue that family member depending upon the amount of money that has been paid back within the last year.
Once you have gotten all your documents in order you will be able to complete the questionnaire. The information in the questionnaire can be used to help complete your petition.
For clients that have completed the process and received their discharge, I typically give them the following advice.
The first step is to get their bankruptcy petition, discharge order, credit report, all in one file. If you need this, later on, you have it all organized and properly labeled. Be sure to make several copies of the discharge order.
The second step is about sixty days – no, earlier than sixty days – after the discharge order is granted, at that point they should order all three of your credit reports.
Always order three separate reports and don’t use other services other than annualcreditreport.com. Don’t get a tri-merged report because it is too difficult to find the important facts.
Andrew Campbell: Yes. It’s not a good report. You want all three credit reports from all three credit bureaus.
There are more than three, but the major ones are TransUnion, Experian, and Equifax.
Interviewer: What’s wrong with the tri-merge? Does it just hide a lot of info or what?
Andrew Campbell: The tri-merge is not as complete as the individual credit reports and it’s more difficult to read.
Interviewer: What are you looking for sixty days out? Should the bureaus have reported the discharge by then? What else should you see?
Andrew Campbell: Sure. You’re going to get you what most people call the credit report and that’s really technically a misnomer.
Technically, it’s called the credit disclosures, because the credit report is a snapshot in time.
Your actual report is constantly changing every minute, so it’s simply a snapshot in time.
You’re going to want to get those reports and you’re going to want to save them.
Also, when I said before about organizing properly, make sure you have a copy of the credit report or credit reports you gave your attorney. Keep those in your separate file as well.
Once you get your reports you want to review them.
Make sure the reports state that any discharged debt is “0” balance discharged in Chapter 7 or discharged in Chapter 13.
There was a class action lawsuit against all three credit reporting agencies many years ago because they weren’t properly reporting chapter 7 bankruptcies.
Part of the relief in the class action was injunctive relief which is an order to do something differently, so they set up a process to comply with that order and settlement. That process works fairly well.
Basically, the credit reporting agencies go through PACER, which is the online filing system that the bankruptcy and the federal courts use.
The crediting reporting agencies jump on there maybe two or three times a day, and they pull data and they immediately report a bankruptcy on a person’s credit disclosure, which is really important.
What you are looking for after your discharge is for every single debt that was discharged to report as zero balance and the status should say discharge in chapter 7 or discharge in chapter 13.
That’s most important. Remember these are only for discharged debts.
The problems I see typically are that there are some debts that aren’t discharged – student loan debts, for example. Those are not discharged.
The governmental loans will be put on hold or administratively closed while you’re in your chapter 7 or while you’re in your 13. This is so that the automatic stay is honored and so they report anything to the credit bureaus. This means they’re not reporting you’re late.
So review all debts and be sure those that have been discharged are properly reporting. If they aren’t you should follow the mandatory dispute process under the Fair Credit Reporting Act.