Rebuilding from Ch 13

cf2701 · ‎01-17-2018

I see lots of info on rebuilding from Ch 7, but not nearly as much on recovering from Ch 13.

I am approaching my 4th year of payments soon (out of 5) and I'd like to do anything I can to be ready once my payment plan is over.

I'd like to do anything possible to be in the best position once my payment plan ends. Should I join a particular CU now to build a relationship?

I'm a member of a local CU and they have been great to me. I did get an auto loan (approved in advance) about 6 months ago and they gave me an excellent rate of 2.5. So, I have faith that they will treat me ok, but I'm thinking about larger CU's as well.

Anyone have any other advise for me to be in the best place I can be?

Anonymous · ‎01-18-2018

The rebuilding process is the same regardless of whether it is BK7 or BK13. But you have a few extra hoops to jump through with BK13. Namely, your trustee has to approve in advance any loan or credit that you apply for. Assuming that you are very judicious in your requests, your trustee will probably be supportive.

It's great that you already have a car loan approved. That's a big step in the right direction. It would help if you activated that in order to get that onto your reports. Assuming you can afford it, of course.

I'd suggest also getting a low CL (since a low limit will be more agreeable to your trustee) credit card, which will probably need to be secured at first. Ask your CU what they can do for you. If they are no help, an OpenSky card is a decent option because they report monthly to all 3 CRAs and don't do a HP on your credit. A second card from another bank would be great, if your trustee is ok with that. Keep the total utilization under 10% and remember that its only purpose at this point is to put on-time payments onto your reports. This will give you 2 years worth of positive accounts, which will be worth their weight in gold when your BK13 is discharged and eventually falls off your reports.

Once your discharge is done and you're no longer at the mercy of your trustee, you can add a few more accounts.

Also, if you rent, you can actually get your rent payments added as a tradeline through services such as Rent Reporters. It can help a lot when applying for a new apartment or a mortgage since it establishes solid monthly property payments.

Finally, get copies of all your credit reports and start to do clean-up. Dispute anything that is inaccurate. I had my BK13 removed from EQ 9 months early (which is nearly impossible) because they had it listed incorrectly!

Expect to see a nice FICO score increase (possibly 100 points) as baddies go away and goodies replace them. You're probably at around 550 right now and could get up around 650 by the time you hit your discharge. You won't see any increase when the BK13 is discharged, but if you have a clean report at 7 years when the BK falls off, you could see a 100 point jump the next day and be in the upper 700s. It will be a day you will remember for a long time!

cf2701 · ‎01-18-2018

JoeFriday,

Thank you for all the great information. I have a couple of follow-up questions:

On the car loan, it is reporting as paid on time on with all the credit agencies. When you say "activate" it, what exactly are you referring to?

Via CreditKarma, my scores are TR 662 and EQ 648. I realize that those are not real scores, but it is a point of reference.

I'll look into the renting reporting and get that going as well.

Last question, specifically regarding a larger CU. I've heard amazing things about NFCU. I was wondering if I should go ahead and join and open a savings and checking account to start establishing history with them so that when I get out of Ch13 I would have a better chance of building further credit with them.

I am 100% serious about using credit as a tool now, and not being irrisponsible as I've done in the past. As much as having to pay $800 a month stinks for 5 years, I am also blessed and after some time have realized that it's been the best thing in the world for me. I'm not 100% positive if I'd qualified for Ch7 that I would have learned my lesson, and thats just me being honest.

At this point I've built a decent emergency fund of around 3x my monthly bills. That's been accomplished for about a year and a half. I also saved up to put a good down payment on a good used vehicle, which is the car loan I mentioned earlier. I'm in a good spot financially, for as much as I can be at the moment.

I'm looking forward to using credit wisely and purchasing a home in around 3 years, if possible.

Last question, are you fairly confident that my trustee will ok a credit card, even if it's secured? Is that normal? I know areas are different and it depends on the trustee. I just want to make sure I'm being reasonable.

So, if you could advise on the CECU and secured credit card/trustee questions, I'd appreciate it.

Thank you!

Anonymous · ‎01-19-2018

You said you were approved for a car loan but you didn't say you actually went ahead with it. So ignore my comment about that.

Just contact your trustee and ask about getting a credit card so you can establish a line of credit and maintain it. The trustee might have a few questions or concerns about that, but probably will understand your intent. The trustee might not care about the credit limit but a lower limit means less chance you'll get in over your head. And with secured cards, you always choose a low CL because you don't want to hand over a lot of money up front as collateral. I put $300 into my OpenSky card, which was enough to make it easy to stay under the 10% util level but give me enough to buy some groceries or put gas in the car. I generally run it up to about $60 and pay it down under 10% before it reports. Then pay it off entirely before the billing cycle closes. Rinse and repeat.

It probably won't matter to the trustee if it's secured or not, but it is pretty hard to get an unsecured credit card with a BK on your credit report (especially before discharge), regardless of your credit scores. That's why I'd just go straight to a secured card and not risk hard pulls and denials. The point is to keep your credit reports squeaky clean.Your CU might be able to offer you better options, so ask them.

I signed up for Rent Reporters last summer. They got my rent history from my landlord and added a tradeline to my TU report going back two years. So I instantly had a new two year old account with perfect payments. I got a decent 13 pt boost. Some people apparently see 30-40 pts. Something like that can really help a person going through BK since most of their history gets wiped out and their AAoA drops to nothing. Unfortunately, it's only on my TU report, but it definitely helped me.

I don't have any advice about joining a larger CU. I don't have the option of joining NFCU, but I read good things about them.

Your vantage scores are great for being only 3 years into a BK13! Keep up the good work and remember that this isn't a race or a single goal to hit and quit. It's a new way of life. The great thing is that you're well on your way to being a really good position when you come out the other side of your BK. You'll probably have higher FICO scores than people who never filed BK. And you have years to clean up your credit reports. It's really encouraging to see those improve.

As for buying a house in the future... you're already eligible for an FHA loan. You only need to have completed 1 year of your payments on time and have a FICO mortgage score above 620 (altho 680 is really where you should be to make the process easier). There are other loan programs you can look into (USDA, VA if you or your spouse are a veteran, or even conventional loans) but those almost always have a two year post-discharge waiting period. So you'll either be looking at an FHA loan in the near future or another loan program in 4 years. In any case, I'd strongly suggest starting to work toward it right now by starting a downpayment fund asap. Don't put it off and think that you can make it all happen in one year or less.

Anonymous · ‎01-19-2018

I signed up for Rent Reporters last summer. They got my rent history from my landlord and added a tradeline to my TU report going back two years. So I instantly had a new two year old account with perfect payments. I got a decent 13 pt boost. Some people apparently see 30-40 pts. Something like that can really help a person going through BK since most of their history gets wiped out and their AAoA drops to nothing. Unfortunately, it's only on my TU report, but it definitely helped me.

Sorry, OP. I don't mean to hijack the discussion from the Ch 13 topic.

JoeFriday, I am also considering using one of these rent reporting services to add a new tradeline on my reports. I was reviewing Rent Track, and they claim to be reporting to all the 3 CRA's. They also have a service that would report the past 2 years of rent history for about $100 one time fee. My question is - how would the AAoA calculation work for this tradline? Would it be considered a new account that was opened this month, though it would have two years of history? Or would it be considered a 2 year old account? Would it be included in the "new accounts opened in the last 2 years" count?

tooleman694 · ‎01-19-2018

My Chapter 13 was discharged yesterday, a few months before the discharge I was able to get 2 secured cards. That really bumped up my Ficos good. I really should have done it years ago to build up the credit.

This morning I did an app for Discovery and was approved for their secured card. So now ill have 3 postive tradelines going right out of the gates. Next up is to buy a new car, and work my credit up so I can get a conventional mortgage in 2 years.