Bankruptcy Can Help Debtors Rebuild Their Credit

A very common concern among our clients is whether they will be able to reestablish their credit after filing bankruptcy.  In most cases, we tell them that they will be in a much better circumstance after their bankruptcy discharge is granted.  When someone is on the brink of filing a bankruptcy their credit is already damaged .  Filing bankruptcy doesn’t make it any worse.   Bankruptcy  actually helps the debtor get relief and begins the process of rebuilding their credit score.

A bankruptcy will remain on your credit report for 10 years from the date of bankruptcy filing.  However, you will soon begin reestablishing your credit after discharge.  Chapter 7 debtors will begin receive credit card offers within six (6) months of their discharge. Creditors are willing to extend credit because debtors can not receive another bankruptcy discharge for 8 years. Chapter 13 (reorganization)debtors will not receive such offers until after they receive the bankruptcy discharge. Since Chapter 13 can take up to 5 years, their options are somewhat limited.  A Chapter 13 debtor who is planning to incur more than $500 in debt while in bankruptcy will require court approval during their 5 year bankruptcy term.

There are simple things you can do to reestablishing your credit after bankruptcy.  How fast you will rebuild your credit depends on varying factors.  It also depends on your resources.  Those with a higher income will be at an advantage.  If you were able to hold onto your home, paying your mortgage on time will help you improve your credit.  The following is our guideline to help our clients bounce back after bankruptcy and reestablish their credit.

1. The first step is to establish a budget by comparing monthly expenses against income and setting priorities for spending and saving.
2. Purchase only what they need and only with cash.  This way they end up saving more money.
3. Pay your bills on time, even the small ones.  This helps you reestablish credit.
4. Watch your credit report closely.  You need to make sure that your bankruptcy is accurately reflected on your credit report and that any old debts are removed from the reports.
5. Get a credit card.  Some debtors may be offered unsecured credit cards soon after their discharge because lenders will not consider them a risk since they are not carrying any debt and cannot file another bankruptcy for years.  However, the interest rate and fees on those unsecured cards will be very high and costly.  Instead, we encourage our clients to get a secured credit card, and tell them to shop for one with the best rates and least fees.  Use the card sparingly for 6 months to one year and pay off balances in a timely manner.  Then call the credit call issuer to negotiate for an unsecured card.  We also suggest that you don’t apply for too many credit cards at once.  Each time you apply for a card, your credit may potentially be lowered.
6. Adopt a positive attitude.  Your attitude and persistence can make all the difference.  Building a savings account and not carrying a debt, shows you can control your spending behavior.  Those consumers who takes the positive approach are going to recover much faster.