Tuesday, November 18, 2008

Someone Who Has "Bounced Back"

I started this blog to chronicle my journey through bankruptcy and how I would have to change my life. I know I'm not the only person who has gone through bankruptcy, I think I'm one of the few that blogs about it. I use this blog to vent, to ramble on about random things, to entertain and to give some hope to those also facing bankruptcy that while it is a horrible experience, it is not the end of the world. You can survive bankruptcy. I'm slowly doing it.

As I've posted before, I hold a real estate license. It's my non income producing second job at the moment. One of the agents I work with in the real estate office has two clients (a married couple with two children), who have filed Chapter 13 Bankruptcy. We will call them The Smiths. With that BK, they lost their home (had to do a short sale) and moved into a rental. Their reasons for filing a BK were due in part to a drastic reduction in income due to the husband going on long term workman's comp. for an injury and being over extended on consumer credit. They were bound and determined to become homeowners again.

Part of my "job" at the real estate office is to help the broker pull credit reports on tenants (mainly because he is not computer literate enough to navigate the on line system). The Smiths somehow managed to get into a rental while their C13 was still in the court system. From what I've heard, they have been stellar tenants with very few hiccups. This past spring, they thought they wanted to move to a different rental. We pulled their credit report for two prospective rentals and boy, were they surprised at the amount of incorrect information on their credit report. A number of accounts resolved in the C13 were still listed as active and past due or in collections, their former home was listed as a foreclosure sale, other loans were listed as past due (even though they had sold a number of the toys that contributed to the C13 Bk-boat, jet ski, 3rd and 4th vehicles). To top it off, all this mis-information resulted in a FICO score is the low 500's for both of them. When Mrs. Smith read her report and saw all this mis-information, she nearly had a meltdown. It also made me run for my credit reports to make sure my information was correct and current (it was not pretty information, but at least it was correct).

According to Mrs. Smith, the house was sold at a short sale (less of a hit than a foreclosure supposedly), the boat and jet ski sold and loans paid in full, the other cars turned in to the dealer for one newer family car (I'd hate to see that loan), and that they had been current on their credit cards and remaining loans. Their agent gave them a copy of their report and told them they had to get all this information updated. Given the really bad credit history, the c13 BK and what was currently on the credit report, she highly doubted that even with the good recommendation from their current landlord that they would be able to get into a decent rental house. That was and is the state of the current rental market. You want a good home or apartment, you need good credit.

What these folks did do was to connect with a local mortgage broker. They very badly want to purchase a home again. They both were back to being full time wage earners, they were working on their savings and they wanted to do what they needed to do. The local mortgage broker sat down with them and outlined her banks programs for people with average credit. She told them that her bank would not approve a mortgage for anyone with that FICO score period and the c13 needed to be at least two years old so that they could prove they were adhering to the Trustees re-payment schedule. The broker also told/taught them how to dispute the items on their credit report and how to follow up with the credit agencies, all three of them.

These folks took direction well. They dissected that credit report, they got all the documentation they needed, they questioned the misinformation, and they followed up. It took a couple months but almost all the mis-information was corrected and updated. I know they were going back and forth on a few items. The mortgage banker pulled their report in early October and their scores had just broken into the low 600's. The scores went up almost 100 points. The mortgage banker told them if they kept on doing what they were doing, that they could qualify for a new mortgage after the first of year. How do I know all this information, it's because they were open about the c13, they were willing to talk about it and they were willing to do what they needed to do to get back into their own home.

What they did right

1) They lived almost exclusively on cash.
2) When they did use their credit cards, they paid them off in full each month.
3) They lived within their means and did not rely on the overtime as "regular income"as they did in the past.
4) They used almost all of the overtime pay to pay down their bills and put it into savings.
5) They got rid of the "toys" and after the C13, did not go back out and repurchase them.
6) They consolidated their vehicles (down from 4 to 2).
7) They pulled their credit report and disputed the incorrect information.
8) They lived on a tight budget
9) They paid their bills on time.

For a number of people who are forced into Bankruptcy, it can be hard to go to the cash only mentality, live on a budget, and change their life. Here is an example of a couple who has done just that.

It's not been easy for them and there is no guarantee that they will qualify for a bank loan. The mortgage broker has made it clear that they will need a large down payment, need to keep working on their credit and will probably have a larger interest rate than someone with good credit and no BK.

It can be done folks, people can bounce back.


Anonymous said...

I have been thinking about pulling our credit reports. We've never had anything late so I'm curious about our actual score. But more so I'm a little bit worried that there may be misinformation on there. I think I'm make it a priority to pull the scores before the end of the year.

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