Secured Credit Cards While In A Chapter 13 Bankruptcy

Good Credit Just Ahead Sign

Rebuilding credit is not an overnight process, but it can be done sooner than many think possible. And yes, this can be done while one is making monthly payments in a Chapter 13 Bankruptcy Plan. Done properly, the credit rebuilding process requires a little less than a year to establish good credit. So take a breath, be patient and do it right.

Always keep in mind that just because you can begin rebuilding your credit while in Chapter 13, this does not mean you are outside the jurisdiction of the bankruptcy court. You will need to get authorization to incur new debt, such as for the purchase of a vehicle or a home or the refinance of a home mortgage. Providing you reside in a Bankruptcy Court District, for example the District of Colorado which allows for revesting in the Chapter 13 Plan, it is less of a hassle with the smaller stuff which is really key to rebuilding your credit. More on this below and in other of my blogs.

Before you can begin rebuilding credit, your Chapter 13 Plan must be confirmed by the Court. Discuss the confirmation process with your bankruptcy attorney. You do not have a confirmed Plan just for having filed a Chapter 13 bankruptcy.

The Basics of Building Good Credit Scores

2013 FICO Pie Chart

Given that you want to rebuild your credit, it is essential that the basics of credit scoring be understood. Key to this is the balance of your available credit against revolving credit (credit cards). As discussed in this blog, it is perfect to not have more than 10% of your available credit in use in any given month. It is ok to have up to 20% of your available credit in use, but advisable to pay the balance down to 10%. For example, if one has available credit of $1,000, for best results, one would have no more than $100 (10%) charged during any given month. One would never have more than $200 (20%) charged against the $1,000 available credit limit.

The Chapter 13 Payment

More often than not, I see a late payment made to the Chapter 13 Trustee. This is a deal killer at worst or a delay at best. To learn more of the importance of this payment, you will wish to understand the facts which are discussed in my blog titled: The Chapter 13 Payment.

You Must Use Credit

Rebuilding and maintaining good credit require that you use credit. Yes, to have good credit you must show that you can use it wisely. On this, you will do very well in rebuilding your credit by maintaining a small balance on your credit card(s) and paying minimal payments. You are, in a sense, buying your credit back. Keep in mind, you need to keep a small balance on your credit cards and not pay off the entire amount monthly. Pay on time or pay early, never late. Once you have scores above 740, it is fine to pay off the balance monthly.

Rather than spending your money when you charge something, take a cash advance and put it into your credit union savings account. Read on for more about how and why to use a credit union to help you rebuild your credit and raise your credit scores.

Beware of Ignorance and Prejudice

Unfortunately, there are many folks who have a prejudice against those who have had to file for bankruptcy protection. This includes the folks working in credit unions today. Most credit unions allow one who is in a Chapter 13 bankruptcy repayment plan to obtain a secured credit card. Many, but not all, credit union employees understand this. For example, I called a nearby credit union today and was told by the person responsible for establishing a secured credit card that my client must have been Discharged from Chapter 13 for two years before she could be eligible for a secured credit card. Next I called a nearby branch of this same credit union and spoke with the person responsible for establishing a secured card. He stated that all my client must do is to become a member and make the appropriate deposit. He further explained that since this was to be a secured credit card, that a credit report would not be needed. The fact is whether you think you can or can’t you’re right.

Patience is Key and Being Polite has Rewards

Your success in setting up the secured card with the credit union depends upon which clerk, which location, and what mood they are in. Patience is an integral key to accomplishing your goal. First, open your savings account. In a credit union this is called a Shares Account. Be smart, take time and build a new ‘banking’ relationship while you are building your Shares account. Save at least $1,000 before asking to open a secured credit card. I strongly encourage that you read this blog titled Credit Union Power to learn how these “non-bank’ banks can be superior to traditional banks for those wishing to rebuild credit. Among the ways they are are different from banks in that as a member you become an owner. This is different from just being a customer. On this blog, you may also search for nearby credit unions which you can join. This information is good throughout the U.S.

There are also other secured credit cards available as referenced in this blog. However, very few have zero fee cards with minimal interest such as credit unions. Several of the dry goods stores such as Kohl’s and Victoria’s Secret also offer credit cards to those wishing to rebuild their credit. These, too, have the same rules regarding the usage of credit against the credit limit (10% best – 30% max).

Credit Utilization

Anyone who uses credit cards could have high utilization, particularly those which pay off their balances in full each month. This is because balances are often reported to the credit bureaus mid-billing cycle. So if you have a $5,000 limit and you charge $4,000 in a month, you could be reportedly utilizing 80% of your available credit. The result is most often dramatically reduced FICO™ Scores. The higher the limit the better!

Home Loan Refinance While in Chapter 13

Providing you have only a first mortgage, you can, in many circumstances, refinance your mortgage to a lower rate and payment while in Chapter 13. For information on how to do this, start with this blog on the subject. One of the conditions is that a second mortgage is not being stripped in the Chapter 13 Plan. In this case, the Plan must be completed prior to a refinance. Once the Chapter 13 Plan has been completed and discharged, it is necessary – in the vast majority of cases – to wait two years to purchase a home or refinance a mortgage. It is much easier to refinance while still in Chapter 13.

Good Credit: Image attribution
Pie Chart: Image attribution
 
Financially Speaking™ James Spray, MLO, CNE, FICO Pro
CO LMO 100008715 | NMLS 257365 | April 15, 2012 | Rev. July 16, 2015

 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing you give full attribution to James Spray.

64 comments on “Secured Credit Cards While In A Chapter 13 Bankruptcy

  1. Kimberly Hill says:

    Hello James,
    You recommend leaving a small balance on a secured cc each month. Why is that? I ask because everything else I have read suggests paying it off in full. Also, I am in chp 13 and am paying off all of my (and my ex’s) debt on my own with large monthly payments. Why does it seem it is easier for someone with chp 7 can rebuild more quickly or more easily from what I am reading?

    Thank you,
    Kim

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    • James Spray says:

      Kim,
      Thank you for two excellent questions! Regarding why I advise keeping a small balance as opposed to paying the cards off monthly this is my logic. Keep in mind this is all about rebuilding your credit and not about running up a balance on the cards to pay them off in full. Keeping the balance low (below 30% and optimally closer to 10% of the limit is safest) is to eliminate the risk of having overusage of credit against the limit counted against you during the credit cycle. This activity alone will drive and keep your scores down.
      Regarding Chapter 7’s ability to rebuild faster than a Chapter 13: Until you Discharge enters, you are still obligated to pay the debt in full. In a Chapter 7 the Discharge enters in a matter of months. In Chapter 13, the debt is still subject to collection until such time as the Chapter 13 Discharge enters. The Discharge will not enter for over three years at the earliest and over five years at the longest. You didn’t ask but here is an alarming fact is that over 60% of all Chapter 13’s fail.
      Hopefully this information helps.
      Jim

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      • Kimberly Hill says:

        Thanks Jim,
        Your response does help me understand. However prompts a few more questions for me in regard to chp 13. First, would it be more wise to not try to “re-build” via getting a low balance credit card and rather just show one was able to live without? I mean that is I dont need a cc I would only want one if it would help post chp 13. Second, (bare with my logic) if one completes 5 years of chp 13 payments why wouldnt that help their credit a little considering they 1. paid back the debt and 2. clearly made timely monthly payments for 5 years? Last, of course being 2 years into chp 13 myself, your alarming fact has alarmed me. Why and or how do 60% of all Chp 13’s fail?

        Thanks,
        Kimberly

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      • James Spray says:

        Kim – For your best benefit, I suggest you read my blog again and click into some of the links to my other blogs on your subject of rebuilding credit. Having three cards and using them wisely is best. The longer you wait to rebuild the longer it will take you to so do. Time is the key. The more time you have good credit the better. The more time that has passed since negative credit the better. Bankruptcy is a legal event and the most negative single factor to your credit score aside from other legal factors such as foreclosure or credit default judgment(s). The only way to rebuild is with time and as suggested in this and other of my blogs. Why do the majority of Chapter 13’s fail? Life happens. Events such as job loss, divorce and other life changing events occur. This is in addition to the particularly harsh revision, application and interpretation of our bankruptcy laws today. Jim

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  2. Mav says:

    Hi Jim
    I have a question. Perhaps, you can help me. I just finished paying Chapter 13 plan. I already did everything I had to do with the courses and financial education and so on. What happens now? Can I use a credit card now to start rebuilding my credit? Believe me, I am afraid of credit cards now but I do want to start rebuilding my credit little by little.

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    • James Spray says:

      Mav –
      In order to rebuild your credit you must display that using credit cards and that you are using them responsibly. By showing the responsible use, you will be nicely rewarded with greatly improved credit. Look back in my blogs to read about credit cards and as well about credit unions to see what to do that is best. Keep in mind the responsible use part which I point out in these earlier blogs.
      My best wishes for your success!
      Jim

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  3. Paul Hyde says:

    Hi Jim,
    My wife and I are in a Chapter 13, with about 17 months to go. Both our FICO scores are in the 540 -570 range. I was wondering in regards to a “secured credit card” if it is better to do a “joint” account , or for each of us to have our own? I called my credit union today, and they do offer them. Thanks!
    By the way, great info in your “blogs”!
    Paul

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    • James Spray says:

      Hello Paul –
      My concern about joint credit cards while rebuilding credit is that one party and only party must be the manager. Both partners must agree to communicate clearly on the use of he cards. Keep in mind you are rebuilding credit. The best way to do this is establish three seperate credit card accounts. Maintain a minimal balance 10% of the credit line on each account. Set up one in your name with your wife as a co-signer; set up another account in your wife’s name with you as a co-signer; each of you then get another seperate account. Perhaps at another credit union. For tips on joing other credit unions, I suggest you check my posts about them.
      Thank you for for your kind words.
      My best wishes are with you for success!
      Jim

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  4. Suzanne Fouche says:

    Hello my name is Suzanne and Im currently in a Chapter 13,( second one) the 1st one was paid in full. I wish that I never filed again. My car is included and now starting to need repairs, I have no money my daughters getting married March 2nd and I need money now more than ever! I made the mistake of adding my children (ages 24 and 25) to my insurance at work, not smart at all! My check was only $444.00 every 2 weeks instead of $950.00 to 1000.00 take home. Now Im behind on my rent and family wont help because I already owe them ( which I have always paid them back) Please call me if you can @ 706-513-1311 in the evening or around noon during the week. Im 50 years old and dont think Ill ever see the light, can you please help me? Thank You kindly 🙂

    Like

    • James Spray says:

      Dear Suzanne –
      I am not an attorney so please understand the suggestions I make are not legal advise.
      Regarding your Chapter 13, I encourage you to talk with your attorney about converting to a Chapter 7. Even without another discharge, you are likely go gain the relief you need.
      Regarding a vehicle, perhaps you should purchase another as soon after converting to Chapter 7 as possible.
      Whatever you do either your grown childeren need to pay you monthly in advance for the insurance you are providing. They also need to repay you what you have advanced already.
      As to your rent, with your children paying you regularly and paying you back on the insurance you will be able to soon catch up on your rent. This is in your children’s self interest as you need a place to live as well as transportation just to sponser them for insurance.
      And your kids either help you or they get no help from you. Capiche! Best thoughts for your success. You can do it!
      Jim

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  5. Greg says:

    First of all I want to thank you for sharing your wisdom and knowledge with us regarding bankruptcy laws. My question is I been in chapter 13 for 2 1/2 yrs. and I want to start rebuilding my credit. My credit score is 565, what are something’s I can do to start rebuilding my credit? Can I apply for a credit card?

    Like

    • James Spray says:

      Dear Greg –

      Kindly note that I do not advise on matters of law as I am not an attorney. I do advise on matters of credit as it concerns those who have been or are in bankruptcy. I think if you more closely read the referenced blog you will find specific advise on how and where to reestablish credit even while in Chapter 13. This is providing your Plan has been Confirmed and your property revested to you pursuant to the Plan. Given you have been making payments for the lenght of time you indicate, it is quite likely your Plan was Confirmed some time ago.

      To fully understand my blogs, you need to read them while on-line so you may click into the links. This is where you will find a great deal of factual information. The better armed you are with facts, the more you will accomplish.

      My best wishes for your success!

      Jim

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  6. LFinnell says:

    I need serious advice, my car lease expired today 2/24/2013, dealerships have said no to me because of my open BK-13 with 1.5 yrs to go, they want it closed. I must turn the car in this week, they are not giving me ANY TIME altho I have been with them 34 years and did NOT INCLUDED THEM in the BK. I did receive my right to incur debt this past Thurs 2/21/13, last night a sales finance car dealer said, “Go join a Credit Union right away Monday, maybe they will loan me the 15k to get a car (this is after I give 5K down) but none of this helps this weeks situation, I need a car! today, please respond ASAP (i don’t know how to use this blog thing at all but an email I can) so please respon to my email ASAP with your suggestion, I sure do need and appreciated any, any help!, THANK YOU, Denyse

    Like

    • James Spray says:

      Denyse –

      My first suggestion is that you call your attorney’s office for suggestions on car dealers near you that know how to work with situations like yours. I am in the Denver area and know several sources for auto financing for those in Chapter 13. Clearly the auto dealer with whom you have worked in the past knows or cares not how to help you get financing. The suggestion of joining a credit union is also a very useful suggestion for a purchase. Finally, you may need to negotiate a short term extension of the present lease as opposed to seeking a daily or weekly car rental. You may very well need the time as your Chapter 13 Trustee may need to approve you for new credit while you are in your Plan. I suspect a lease is going to be more difficult than a purchase as the risk is harder to manage from a creditors standpoing.

      My best thoughts and wishes are with you.

      Jim

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  7. angel says:

    Hi James,

    I am in a chapter 13, just at about the1 year mark. My landlord would like to sell her house to me in the next couple of months, and I am thinking to get an FHA loan. My credit score is about 569. My bankruptcy lawyer says he thinks my Trustee will approve my purchasing the house, since I have paid on time for one year already. I have a few questions:

    1) how likely am I to get an FHA loan with a credit score that low?

    2 – 4) If I put in $1000 into a credit union savings account, will a credit union issue me a credit card with a score that low? Why would they take that risk? And if I open a savings account with $1000, will they give me a credit card initially, or should I wait to apply?

    Thanks,
    Angel

    Like

    • James Spray says:

      Hello Angel –

      You will need to improve your middle FICO Score to at least 640. This is something you can accomplish sooner than you may think. I suggest you read several more of my blogs to determine what you must do and how. A few that come to mind off the top of my head are (in no particular order):
      FICO or FAKO Scores
      FICO Facts 101(b)
      FICO Facts 101(c)
      Credit Union Power
      Credit Cards After Bankruptcy 101 (this works while you are in Chapter 13, too)
      Mortgage Refinance While In Chapter 13 (this works for purchase, too)
      Piggyback or Inherited Credit . . .

      I wish you the best of success! Let us know how you are doing every three months or so.

      Jim

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  8. Liz says:

    I just received a discharge from a chapter 13 and really need a car. My current car has 194K miles so needless to say, I’ve driven it for all its worth. I found a great buy from an individual that will require me to finance about 15,000. The car books for at least 18K via private party. It is one owner with a clean title. I am a homeowner with about 40K equity in my home, my history with my bank goes back about 25 years, with fifteen of those years including monthly direct deposit. I’ve been a teacher for 15 years. So, I have stability on my side and long term employment on my side but I have no idea where to go for financing. I do not want to risk hard inquiries that result in being declined. Any thoughts at all?? Thanks.

    Like

    • James Spray says:

      Hello Liz –
      Virtually all new car dealers have a financing department that can help you post-bankruptcy. Chedk your credit and see which agency TransUnion, Equifax or Experian is showing the best score. Call car dealers, talk with the finance departement, and match your highest credit score with the agency they use to pull credit. Your biggest situation will be negotiating the most reasonable interest rate for your current credit profile. A suggestion is to call your bankruptcy attorney’s office and ask for some phone numbers of car dealers known to help folks in your situation. Best wishes and thoughts for your success!
      Jim

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  9. Spike says:

    I just filed a Chapter 13 and it’s going to be a 100% due to my income.(everyone gets paid back) It sounds like that can be good and bad. My wife drives an expensive SUV that we are turning back in to the leasing company. She will need a car and I am not sure what is the best way to accomplish that. Thoughts?

    Like

    • James Spray says:

      Hello Spike –

      It is best to make vehicle changes prior to filing. Once you’ve filed there are less options. However your attorney should be able to direct you to a/an auto dealer(s) in your area that will work with those in bankruptcy. The court may require you to obtain permission to incur new debt even though you are planning on “swapping” vehicles. Again, discuss this with your attorney.

      Jim

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  10. Melissa Quilades says:

    Hello Mr. Spray, I have a question & need some advice. I have a 3year old Mod. That I just went into default on, due to an error in my disability check. Once it was corrected I attempted to send a payment and it was returned because it did not include the current month coming due.
    I have 6 children and a very nice pension now, I was just served a foreclosure complaint. I have consulted several atty. Who advised me that I owe 544k on my home that’s been assessed for 304k & I only have a car balance of 25k and about 15k in medical bills that W.c will pay eventually. I have a 1500k credit card & that’s it. I need to stay in the house at least a year, till my children get out of high school. Would a chapter 7 or 13 help me. I don’t use credit, but would like to keep my home. What options do I have.

    Like

    • James Spray says:

      Hello Ms. Quilades –

      With your modified mortgage in default coupled with your wish to maintain possession of your residence, you will wish to consult with expert legal counsel to review your options. Among the expert should certainly be a bankruptcy attorney. On this, I strongly suggest you read the following article: Protect your assets and financial future with the right bankruptcy attorney. Filing a Chapter 7 may not give you the time you seek and given the amount you owe against what the property is worth, filing a Chapter 13 may not make sense either. Perhaps a local realtor could help you sell (or short-sell) your property and arrange a rental agreement for the year you want to keep the property? Unfortunately, I do not see any easy answers for your situation.

      My best thoughts are with you.

      Jim

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  11. Derek says:

    My wife and I filed for Ch 13 in July 2012. We ran into a situation and now need to get a new car. We have contacted several banks and credit unions, talked to multiple people at each place (as per your advice that you could get a different answer from two people at the same place) and they all say our Ch 13 must be discharged before they will do a loan with us.

    We are in Fort Collins and I saw that you work out of Denver and know specific places in Denver that will work with Ch 13. Could you send those places so we could try them?

    We just had another child 2 weeks ago and we physically do not fit into our single little car as an entire family and desperately need to get a second car again.

    Like

    • James Spray says:

      Derek –

      You need to get your bankruptcy attorney involved to get an Application For New Debt approved in order to purchase a vehicle. The Chapter 13 Trustee must approve such a transaction. Hopefully your attorney will have some suggestions as to auto dealers or brokers that can be of assistance in getting you another vehicle. If not, call the finance manager of a few of the dealerships. One of them will know how to get financing for someone in a Chapter 13.

      Best wishes for success.
      Jim

      Like

      • Did all that already – attorney, dealerships, banks, credit unions – nobody can give me a name of a place that works with Ch 13. From what I can tell it is not possible to be under an active Ch 13 and get financing for a new car.

        Like

      • James Spray says:

        What did you attorney say about getting or not getting the Application To Incur New Debt with the Chapter 13 Trustee?

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      • Yes, we have to get that Application to Incur New Debt. But the application requires you list the creditor, the total amount being loaned and the rate. So we first have to find a lender that will work with us and then submit that application.

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      • James Spray says:

        I understand that this is somewhat of a chicken and egg situation. But before you can even consider to submit the Application to Incur New Debt, you need to rework your Income and Expense Schedules. Do you have a current car payment? From where is the money to come to make a new car payment? How much of a payment can you afford and still meet your other obligations? I am really missing something here. Why is your attorney not helping you with this?

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      • ashwebstudio says:

        We had a car payment. The car was repo’d because our bank, without notice, stopped sending the monthly bill payments to the lender. The lender refused to give us back the car even after explaining the situation and how we had no problem making up the missed payments.

        So we are needing to replace this car which payment was already a part of the bankruptcy plan. We would essentially be gettin the same car, just a few years newer at a payment only $9 more per month.

        Our attorney said he does not know any lenders specifically and said it was up to us to find one.

        Like

      • James Spray says:

        I knew I was missing something. The auto repo while in bankruptcy has upped the ante considerably. There are several car dealers and auto lenders that will finance someone while in Chapter 13, that alone is not the problem. The repo while in bankruptcy is your biggest obstacle.

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      • Chris says:

        Hello. I purchased a new car from tyans in aurora. They have a few lenders that do not require trustee approval.

        Like

      • James Spray says:

        Thank you, Chris. However, kindly note the post you’ve referenced was not about vehicle loans, the topic was about home loans and they most definitely do require either Trustee or Court approval. In the US Bankruptcy District of Colorado, Trustee approval is the customary practice for home mortgages.

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  12. Christy says:

    I want to thank you for your blog. I spent most of the night reading and re-reading all the Chapter 13 information. I am currently in a Chapter 13 bankruptcy (it was a year in May)
    I have a 657 transunion score. I am assuming because I never missed a payment in my credit building life, that is why I filed chapter 13 so I wouldn’t have that negative activity on my credit report. I filed because it was too much to keep up with (divorce after 19 years)
    So there is my history in a nut shell.
    I was able to obtain a Target store card last year after my bankruptcy.
    My Kohls charge wasn’t involved in bankruptcy, and I was given a $400 credit limit to Fingerhut increased my score +7 points this month, so I am using those to rebuild credit. My question is, will the Trustee check my credit during an open 13 case and is what I am doing allowed?? After reading your blog I think the answer is NO..
    I also applied for a used car loan without the letter from trustee, I find out today if it is approved without the letter. I currently have a car and a payment that the trustee knows about. My new payment will be lower ..am I treading in dangerous waters by not speaking to my trustee?? I highly doubt any bank will approve me without that letter..but the worst they can say is No…right?
    Thank you for your time and knowledge.

    Like

    • James Spray says:

      Hi Christi –

      For the record, I am not an attorney and do not provide legal advise. I do provide credit advise. Regarding the Chapter 13 bankruptcy, once the Chapter 13 Plan is Confirmed, you are essentially on your own and free to pursue your life as you see fit. The Trustee is not your advocate, quite the opposite is the fact. If you have any doubts, contact your bankruptcy attorney and ask if s/he believes it is necessary in your case to amend your Income and Expense Schedules.

      After your Plan is confirmed, the Trustee does not need to grant permission for you to open new credit accounts. This is entirely up to the Creditor. Some Creditors insist on “Court Approval” as they do not understand bankruptcy law. To illustrate, certain Creditors will demand Court approval but readily accept Trustee approval. Clearly the Trustee is not the Court.

      There are auto dealerships that understand Trustee approval is not required just as there are Credit Unions that understand the same regarding approval of new credit.

      As to a Chapter 13 Trustee checking Debtor credit history, I’ve not heard of such happening, ever. I believe the costs of such credit checks would, on the surface, rule out this practice as a Chapter 13 Trustee case management tool.

      Keep in mind the FICO Pie Chart as you continue to rebuild your credit. An installment loan will be a help to your credit profile. The biggest boost to your scores is the consistent but minimal usage (10-30% of the limit) of unsecured credit.

      Best wishes for your vehicle loan approval and at a decent rate and payment.

      Jim

      Like

      • Christy says:

        Thank you for your response.
        I value your input. I just want to confirm “how do I know if my bankruptcy is confirmed”
        Thank you again!
        Christi

        Like

      • James Spray says:

        There are six key components to a Chapter 13 bankruptcy. They are the [1] Petition [2] Schedules [3] Statement of Financial Affairs [4] Plan [5] Order Confirming Plan and [6] Discharge. I suggest you organize your bankruptcy documents to surface 1-5 and keep them in a safe place awaiting your Discharge Order. It is likely the Order Confirming your Plan was issued in the first 6-8 months of your Chapter 13 Case being filed. If the Plan has not been Confirmed, your attorney is still working to get a confirmed Plan. If you cannot find the Order, contact your attorney’s office and ask that a copy of the Order Confirming your Plan be sent to you.

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      • Chris says:

        Jim – some good information I’ve found in your blog. Thanks for all the insight! One question for you, as I am coming to the end of my chapter 13 in 12/14. I have you read you state that you need permission to incur new debt earlier in the comments, but now you are saying that you can? What situations make this different? Honestly, everything I’ve read in the past few years has been that incurring new debt (CC/loans/mortgs) is against the rules…until your blog, I had never heard anyone say that it was my right. Can you clarify that for me?

        Like

      • James Spray says:

        Good question, Chris.

        In the District of Colorado, in order to qualify for a mortgage, it is essential that an Application to Incur New Debt be approved by the Trustee. Local Rules may vary district to district. However, from the mortgage standpoint, the only mortgages for which one in Chapter 13 qualifies are either FHA, VA or USDA. The underwriting rules mandate that the Court approve the application to incur new debt. This is interpreted as approved by the Trustee.

        Regarding credit cards and vehicle loans, once your Plan is Confirmed, you are not required to obtain permission from the Court. The problem in the market is the confusion caused by the mortgage underwriting requirement discussed above. What I mean by this is that getting approval for either credit cards or vehicle loans takes some market savvy and persistence. For example, there are several auto dealers in the Denver Metro area that offer financing without the Application to Incur New Debt. The same goes with credit cards in that there are banks and credit unions where you will be allowed to set up a secured card to begin reestablishing credit. I think you will find benefit in reading my blogs on Secured Credit Cards as well as the one titled Credit Union Power. As well look for a few of the more recent posts on reestablishing credit.

        Best thoughts for your success!
        Jim

        Like

      • Chris says:

        Very interesting, thanks for the response!

        So, the issue is not whether or not I actually need permission, but whether or not the lender realizes this…

        Thanks!

        Like

      • James Spray says:

        This is correct in the context discussed. Upon confirmation of the Plan, all property reverts to the debtor. You received a copy of the confirmed Plan, it could be beneficial to review and perhaps reference same if needed.

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      • Chris says:

        I will look into that. I know my plan was confirmed about a year after filing. Will that confirmation specifically tell me that I can or can not?

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      • James Spray says:

        I suspect it will not spell out what you may or may not do, at least not without a legal interpretation. What I suspect you will find is language to the effect that all property revests to you upon confirmation. Beyond this, I would be practicing law and I am not an attorney.

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  13. Christy says:

    Hi James,
    I wanted to thank you and follow up with you and regarding finding a bank that would approve me during a chapter 13 . I signed today for a car. My loan was approved with a 13% interest, it is through a credit union where I also opened a savings account, eventually I will apply for a secured credit card. Your advice was greatly appreciated. Thank you again for giving me the confidence I needed to pursue this car loan!
    -Christy

    Like

    • James Spray says:

      Thanks for the update, Christy. Congratulations! Once you’ve made your on-time vehicle loan payments (“Goldilocks payments” -not too early and never late) for 6 months, appeal for a lower interest rate. The worst case event is a rejection, best is a lower interest rate which can translate to a shorter term.

      Best wishes! Keep on building you new life.
      Jim

      Like

    • Christian says:

      Hello. I have found a few dealerships that have lenders that do not require a letter to incur debt, but do you know of any credit unions in Colorado that would not require a letter from the trustee? Christy’s 13% is better then the 18 to 21% I have found. Thanks

      Like

      • James Spray says:

        Hello Christian – While I do not know of any off the top of my head, it doesn’t mean there are none who will. You may improve your chances with a letter from your attorney explaining that your Chapter 13 Plan is Confirmed and that as a result you are authorized to incurr new debt without Trustee approval. (Underwriters and loan committees do not understand Bankruptcy Law. Frankly neither do the auditors which hold the CU’s accountable.) Next, call and simply ask some of the CU’s for which you are or may become eligible to join. There are a couple of CU search engines on my blog Credit Union Power wherein you will also find more information on eligibility. Finally, I’ve found the smaller CU’s to be more flexible.

        Feel free to contact me for additional information.

        Like

  14. CB says:

    Hi, James…
    My husband and I are 3 months into paying off our Ch13. I recently got a new job and my new boss is trying to get me a corporate credit card for business expenses. How does Ch13 and corporate credit cards work? – CB

    Like

    • James Spray says:

      Hello CB –

      The corporate card with which I am familiar is one which my corporation qualified for under it’s Dunn & Bradstreet rating and my Employee Identification Number. I can authorize any number of employees to have such a card in their name under my corporation’s D&B rating with my guarantee. My employee(s) are not required to provide their social security number. As a result, if it is this kind of a card, you would not personally be acquiring new credit. As such you should not need the Court or the Trustee’s approval.

      If, on the other hand, you are required to personally guarantee a new credit card with your social security number, you may need approval from the Court or the Trustee. I say this as you are so early into your Plan that I suspect your Plan may not yet be Confirmed and as such your property rights may not be vested back to you yet.

      Once your Plan is Confirmed, subject to an underwriters discretion, you do not need approval from the Trustee or the Court.

      Disclaimer: I am not attempting to provide legal advise. I am merely providing practical advise as it relates to consumer credit and bankruptcy.

      Hopefully this helps answer your question.

      Jim

      Like

  15. S says:

    Hi James, I’m glad I came across your blog as I am currently under a Ch 13 plan (18 months into a 5 year plan). I finally got the courage to just look at my credit reports over the weekend. I retrieved them from annualcreditreport.com. I will be purchasing my scores soon from each of the bureaus independently to get a baseline, but my question is this: my reports have errors throughout them. For example, I included my car in my plan, but my reports show a delinquent payment the month I filed for bankruptcy. This is incorrect. I didn’t make the payment because that is the month I filed for bankruptcy (I will comb through my records to be 100% sure), but that it just one example. Another common error that I noticed on both my report and my wife’s report was an account that was included in the bankruptcy, but listed as delinquent or in collection as opposed to being part of the Chapter 13 plan. These accounts were included initially in my plan when I filed, so it’s not a situation where I need to amend my plan. Third, I did notice a delinquent account on my credit report that appears to have been overlooked on my part (still combing through hundreds of pages of credit report to be sure) prior to filing Ch 13 and this account shows up as delinquent and is not part of the bankruptcy. I don’t want to amend my plan for the account because that opens up my income and expense schedule (I don’t want to make waves and risk having my payments increase for just one insignificant debt). Or perhaps, I’m wrong, and it was included in my plan (not 100% sure). What do I do about the accounts that show up as delinquent and not part of the plan when they should be part of the plan? Fourth, the TransUnion report is miserable to read as it includes many unrecognizable accounts that I think are legit accounts such as my Chase cards being listed as Barclays. This is making it very difficult to reconcile with my debt spreadsheet that I created before I filed. I can’t match up the balances either because it shows them written off with a zero balance due to the Ch 13. How do I correctly identify which accounts these are, call the 800 number for them listed on the report? Finally, I have errors on my past addresses. Some are incorrect, not all of them are listed, it’s hit or miss. What do I do about missing, incomplete, or incorrect personal data? One more thing, I have an open line of credit for 20K listed on one of my reports, but it is actually closed. I think I’ll leave that as is because that should help my score? Thank you, in advance, for your help. I’ll have many more questions as I clean up this mess over the next three years.

    Like

    • James Spray says:

      Hello BD – I see no reason for any need for you to modify your Plan due to the information showing on your credit reports. Here are my observations after reviewing your inquiries: Pursuant to the Fair Credit Reporting Act (FCRA) the creditor must report your credit to the credit reporting agency or agencies for seven years following the credit event (either derogatory or positive). As you are presently in a Chapter 13 payment or reorganization plan, the debt has not yet been Discharged and the creditor must continue showing the debt with a balance. However, the debts listed in your bankruptcy are presently uncollectable except through the bankruptcy process. The creditor must report that the account is in bankruptcy, if not and there is a balance, dispute that error.
      On the other hand, once the Chapter 13 has been Discharged, the creditor must show a 0 balance owing for the time (7 year shelf life) remaining per FCRA as discussed above. If the creditor is showing a balance due following the Discharge, dispute the report. For information on how to dispute, read Credit Repair Basics
      .

      Other suggested blogs that I think you will find beneficial are: Rebuilding Your Credit While In A Chapter 13 Bankruptcy Payment Plan; The Chapter 13 Payment; FICO or FAKO Scores? ; Common Misunderstandings About Credit Scores – Part 1 and others of the FICO Myths blogs.

      I am hopeful you find this information helpful. Please contact me with additional questions after reading the suggested materials. Best thoughts and wishes for your success!

      Like

  16. Ashley Smart says:

    Good Afternoon Mr. Spray, thanks for the wonderful service you are providing here!. I am two years into a five year chapter 13 bankruptcy and my goal is to get out of this bankruptcy by year 3. I plan to refinance out of it next year. I have two questions; (1) In terms of the credit union suggestion above, do I try to open a savings account with them first and then open a secure credit card a couple of months later or should I do both at the same time (2) Do you have any additional information on refinancing a mortgage to get out of bankruptcy?My goal is to improve my credit score (currently at about 600) and get out of this bankruptcy as soon as possible. Thanks

    Like

    • James Spray says:

      Hello Ashley –

      Let’s talk first about Credit Unions (CU).. A good primer on CU’s is my blog titled Credit Union Power. As you’ll note to become a member you must have a Shares account which is a savings account. You are required to maintain a minimum balance. My CU has a minimum of $25.00 for the Shares (savings) account. Once you have your shares account you are now eligible for all financial services offered by your CU.

      On paying off your Chapter 13 early, make sure your attorney has blessed this. This can present very expensive consequences in certain Districts of the US Bankruptcy Courts.

      Refinancing While In Chapter 13 Bankruptcy is a good source for more information on Refinancing While In Chapter 13. Of significant importance is my post titled The Chapter 13 Payment.

      Best thoughts,

      Jim

      Like

  17. Rob says:

    James
    I am in ch 13. I tried to get a secured credit card through my financial institution (wells fargo) and they told me their underwriters rejected me since I am still in an open ch 13. Are there companies that will work with those of us currently in ch 13?

    Like

    • James Spray says:

      Yes, Rob, there are financial institutions which will allow you to set up a secured credit card while in bankruptcy. None of the “TBTF” banks will. You will have a vastly better chance of opening a secured card with a credit union. I suggest you read Credit Union Power and then begin calling the CU’s for which you will be eligible (there are likely more than you may immediatly think available to you).

      Best wishes for success!

      Like

  18. Ashley Smart says:

    Hi James,

    Do you recommend notifying Credit agencies of items that should be listed as “included in BK” that are currently not? I am in Chapter 13 and there are two items on my three credit reports that are not showing as being included in the Bankruptcy. Also, do you have a sample letter or the best wording to use in this circumstance? Finally, should I also send the same letter to the specific collection agencies that are showing up on the reports? I really appreciate your input. Thanks

    Ashley

    Like

    • James Spray says:

      Hello Ashley –

      While you certainly can dispute errors on your credit reports which I discuss in Credit Repair Basics, it may be easier (much less brain damage) to send another copy of the Creditor Meeting Notice known as the 341 Meeting via certified, return receipt US Mail to the collection agencies. On Discharge, providing the creditor(s) are listed in Schedule F for unsecured creditors, these debts will be considered discharged.

      The 341 Notice was your notice to attend the Creditors Meeting where you and your attorney would have met with the Chapter 13 Trustee or his or her agent.

      If your concern is that these items may be hurting your credit scores, they aren’t as they are presumably included in the bankruptcy. If they are not included in the bankruptcy this presents for an entirely different discussion.

      Hopefully this information helps answer your questions. If you wish further clarification, please don’t hesitate to continue this conversation.

      Best thoughts,
      Jim

      Like

      • Ashley Smart says:

        It does, James. Thank you. You are amazing! Your knowledge and prompt response are a life saver. I am so grateful I have you to help me navigate this journey. Have a wonderful day!

        Like

  19. John Draper says:

    James, where can I get a secured credit card? I asked my bank, Chase, and they said they don’t offer one

    Like

    • James Spray says:

      Hello John – Thanks for asking. First, I suggest you read the blog more carefully as you will find where you can obtain a secured credit card. There are links in this blog that will link you with other blogs specific to the topic. There is somewhat of an art to this if you want to do it right and patience is truly rewarded.

      I wish you the best!

      Like

  20. Lauren says:

    I have a question. My husband is in a CH13 & we were just recently looking into buying a home. Everyone is stating that he has to go through the courts to get permission to take on any new debt. I understand this. However, my husbands credit score is 611 & we need it to be 640 to get approved for the loan. Our loan officer suggested that we put him on some of my credit cards, and then pay them off. She said again, that we would have to get permission to do so. I contacted the Trustee’s office, and they said that all would have to go through our Attorney. I called the Attorney, and said that he is not allowed to obtain any new credit. The only exception would be if needed a new car due to his breaking down, and then again, we would have to get permission to even try to get a new one. They also mentioned trying to get a credit card due to place of employment, but that isn’t anything that would be close to what we need. Is this due to the state that we live in? It seems like you are stating that you can just go out and apply for a credit card. Are we missing something? I know you can’t give legal advise, but this isn’t adding up.

    Like

  21. Ashley Smart says:

    Good Morning James. I want to thank you once again for the information you are providing here. I actually have more confidence in what you tell me versus my bankruptcy attorneys…lol. On a more serious note; I will be three years into a five year chapter 13 plan this April and I want to give up my house that I included in the original filing. I would like to give up the house because (1) my daughter is leaving for college and I need less house so I can have some disposable income and (2) I have two special needs children and I would like to move closer to the school that has the programs that helps them. I was told by my attorney that my best option would be a modification of the plan which normally happens if you have a reduction in income. My income has actually increased slightly since I filled in 2012 but that doesn’t mean I have extra money to spend, especially with a daughter going to college. I would appreciate it if you could shed some light on what you think my options are. Should I go ahead with the modification? I considered selling the house but it needs significant repairs and I don’t have the money to repair it. Is a short sale an option? Will I be responsible for the balance if there is a short sale? I would appreciate any light you could possibly shed on this. Thanks.

    Ashley Smart.

    Like

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