Step 1 has to be becoming current on your bills. If you are not current on the bills you have, no lender with any business sense will extend additional credit. First you must become current on your bills and eliminate some of your debts. Next, you can think about Credit Repair. Solutions to get current and eliminate debt come in three categories:
Budgeting is the preferable method (probably combined with some negotiation with current creditors). Studies have shown that most of the millions of personal bankruptcies could be avoided with only an additional $250/month in household income! Of course, if a budget can help eliminate $250 in unnecessary expenses that will work just as well.
Developing a written budget based on your current expenses and income is where you start. Then, you need to look at where you can cut expenses or raise income (or better yet both). A short stint at a second job may go a long way towards both raising income and cutting entertainment expenses. Aside from getting current on your bills, which is Step 1 in the process, a budget will also let you begin the task of saving a small downpayment. Many financial advisors suggest that you should "pay yourself first". After finding the money in your budget to get all your bills current, you should try to make room in your budget to begin saving. Ideally, you want to be saving 10% or more of your income every month.
The best known and the worst for your credit are the "nonprofit" Consumer Credit Counseling Services (CCCS). A CCCS entry on your credit report will do you more damage in the home loan market than a bankruptcy.
So, if not CCC, then what are the good negotiation alternatives. One is to negotiate on your own with creditors for a deferred payment schedule or settlement.
Many creditors have a "hardship program" and you should ask about it. You should be prepared to make a payment on the day of the call (or better, as soon as they send you details in writing). Call and tell them the amount you are able to pay and be prepared to take steps to get all your bills in order. (Budgeting, second job, etc.) If you are seriously delinquent or have outstanding collection or judgment accounts, get more information on negotiating with creditors on your own.
A second option is to hire an attorney such as the Lexington Law Firm to negotiate on your behalf. They typically negotiate lump sum payments, so this is best if you have enough money to pay at least half of any single bill. To use this service, you probably will need to have already done the "Budgeting" and saving.
If you've tried budgeting and there is just no way to get ahead of your current bills and
you've attempted to negotiate with creditors and they won't budge. Now may be the time to speak to an attorney about bankruptcy. From a practical standpoint, I would not suggest a "do-it-yourself" bankruptcy. Use an attorney for several reasons. Number one, the attorney will be paid ahead of your creditors in the bankruptcy - the attorneys fees reduce what your creditors will get, if you are truly "bankrupt" (unprotected assets less than your liabilities) it's not going to really cost you any more. Second, if you "do it yourself" and do it wrong, your creditors might be able to get money from you even after the bankruptcy. Third, even if you did everything perfectly, the creditors may be more likely to attempt to collect through persuasion or intimidation and rereport debts to the credit bureaus if you don't use an attorney. If you decide on bankruptcy, use an experienced attorney. If your goal is to reestablish credit and move on the path to homeownership as quickly as possible, discuss this goal with your attorney. There are many types of bankruptcy and even options in the bankruptcy proceeding (such as reaffirming specific debts usually in exchange for continued use of the credit line). If you can leave bankruptcy with some credit intact, that is a big plus assuming the debt is not so large as to leave you in continuing financial difficulties. If medical bills have been the driving force behind the bankruptcy, and especially if you are capable of making all your nonmedical payments, discuss this with your attorney as well -- a bankruptcy to discharge medical bills only is much less negative to a mortgage company and may actually improve your credit situation immediately, especially if you are behind on medical bills and current on everything else. For contact information click here or email me here. Return to Main Page.
