Planning For Recovery[ Edited ]
11-24-2012 06:31 PM - edited 11-24-2012 06:36 PM
So I have been diligently searching around the net and reading article after article of steps and processes on recovering your score in the quickest amount of time possible after a Chapter 7 filing. I'll highlight my main questions with numbers to make them stand out, the rest will be fulfilling details that may help with your idea directions.
Some details about my situation first:
Finally opted to file in October 2012. Took me two years of trying to salvage from job losses, business failures and personal relationship disintegration before I finally decided the time/effort required to keep up was like digging a hole in the sand. I would rather spend that time rebuilding a clean slate.
Among discharged items is a small mortgage through BofA (70k), an unsecured loan (20K, a refinance loan on the remaining balance from a sold vehicle), two Capital One CCs (<1k) and some small collection accounts from a forgotten about Qwest account and random attorney's fees (<4k).
I am currently employed with a stable job (FINALLY!) making a fraction of what I used to, but it's a job at least.
The ultimate motivating factor behind the decision to file was looking back at the fight. As I cycled through minor jobs to try and stay afloat, I found myself paying one account one month and another the next. After two years my credit report looked like a Freddy Krueger crime scene. I was keeping the accounts from defaulting, but I was also destroying my credibility in the process. In my view dragging out detriment over years vs. filing and then focusing on recovering from one hard slap.
Pre-contacting the attorney, I did (and still am doing) research on methods people have employed to rebuild their scores and financial reputation as quickly as possible. Three years ago I was on my second rotating lease for my Audi, packed around an AMEX that routinely got me into concerts that were sold out and generally lived a life of stable financial orientation. I am most concerned with responsibly getting back to that lifestyle.
Now, it is my understanding that there's not much I can do about rebuilding until everything is discharged. Is this correct? It pains me I have to wait potentially months before I can start repairing.
In the meantime, I have shut down all bank accounts in existence before the filing date. I figure rebuilding needs to start fresh, from accounts that don't have their numbers floating around other financial offices. After some research I opened new accounts at USAA (wonderful experience so far btw, the internet reputation is spot on.) and moved any cash I had from the closings into it. Essentially making it the only asset and viable account I currently have. Untied and unbenounced to any previous financial accounts.
The next move should be credit related. A month past DOF and I'm already receiving offers of credit for auto loans. For the most part I throw them away. Not because a new car is out of the question, but because I'm not interested in being forced to buy an overpriced car with an overpriced loan. (In case some don’t know, these offers are from dealerships that mark-up the principle cost on the car well above KBB and then finance them with extremely high interest loans. So essentially you’re getting screwed twice.) Now, I'm well aware of the fact that getting any reasonable rates and offers is going to be a fairy tale for a while, but after reading around I believe if you choose carefully and research obsessively before doing anything, you can form a plan path of greatest potential.
2. So with that, what’s the very best move to begin rebuilding fast?
Here's what I've found so far: Secured cards are fine, but far from the best option in terms of rebuilding quickly. What you want is a traditional card even at the sacrifice of higher interests & fees (common sense involved, obviously). Keep this card at a revolving balance below 27% of the available credit amount. Capital One seems to come up often as being the best option here. The idea is to get ahold of one of these as quickly as you can, so you can start building a positive history again.
Having an AMEX before, I want one again. I loved that card. So after calling them and reading around on the net there's really only one path to possibly getting back into that club as quickly as possible and it's not guaranteed (Also assuming you didn’t have a balance with them in the BK. If you did, they hate you and you’ll be playing ball with the last picked kid at recess). They have recently released their prepaid cards and in the beginning they spoke of holding one of these card for a while with good spending habits and you'll receive an invitation to apply for a traditional credit card after a certain unannounced time. Not sure if it's true or if anyone has successfully gotten back in using this method. So if you have or heard of someone, let me know.
3. Stick with the one card for a while or systematically apply for multiples over the next couple years?
I have read a couple times about people initially getting the Capital One card referenced above. Then after 6-8 months of good rapport with it, applying for an additional card through a different company with better terms. It made sense to me as after the first 12 months the promotional incentives on some of these cards expire, so replacing it in the right time frame is smart. My understanding is it also builds your history faster as you add-on different financial companies with positive feedback over time to your report. The concept makes logical sense, but I thought I'd see what the opinions on here are.
4. Is obtaining an auto loan worth it?
My current vehicle is falling apart. I can probably get another year out of it, but I'm going to need to replace it soon. Now, these offers I'm getting in the mail are **bleep**, but I'm wondering if it would be smart to see about special financing (high interest loan) for a small auto loan (6-10K) within a year after discharge. I'm not interested in trying to buy nice the first go round, I'll just need something that is economical and the small loan can be manageable as well as contribute to my positive history. I figure the diversity in credit isn't a bad thing either. CC's can go so far, but having a vehicle loan obtained post-BK and paid off within 2 years after filing may be a great thing. If this notion is horribly wrong I can buy one cash, my thoughts where I'd be happy to pay a little extra in finance charges if it will help quicken my FICO recovery. No?
All in all, if I have to sit and wait for this thing to discharge I want to spend that time precisely planning a quick and perfect recovery. Obtaining the right CC's at the right time and making the most effective/efficient financial moves.
I'll be joining the 2013 Fitness Challenge as soon as it's posted to help record and report my progress to you all.
So, what are some of your experiences and what do you all recommend? Are my understandings accurate? What would you do (or have you done) in my position?
I'm most interested in those of you who have recently gone through this, as y’all have recent market experience. I plan to eventually write about my experiences and share my learnings with those considering this move a couple years from now.
Thank you for any insight and comments.