Repair Your Credit After Filing Bankruptcy
Filing for bankruptcy is never an easy decision and should not be taken lightly. Bankruptcy not only affects your finances, it also affects your credit score. Chapter 7 bankruptcy can help you wipe out your unsecured debts and receive a fresh start. While bankruptcy can have a negative impact on your credit initially, in most cases you can start rebuilding your credit immediately after you receive a discharge.
How Long Does Chapter 7 Bankruptcy Last?
In most cases, it takes approximately three to four months to complete a Chapter 7 bankruptcy and obtain a discharge. However, if you have a complex case or creditors object to your discharge, it can take longer. This means that you can complete your case quickly and begin rebuilding your credit right away. The bankruptcy record from the court is deleted either seven years or 10 years from the filing date of the bankruptcy depending on the chapter you declared.Chapter 13 bankruptcy is deleted seven years from the filing date because it requires at least a partial repayment of the debts you owe. Chapter 7 bankruptcy is deleted 10 years from the filing date because none of the debt is repaid.Individual accounts included in bankruptcy often are deleted from your credit history before the bankruptcy public record. Usually, a person declaring bankruptcy already is having serious difficulty paying their debts. Accounts are often seriously delinquent before the bankruptcy. All delinquent accounts are deleted seven years from the original delinquency date, which is the date the account first became delinquent and was never again current. Declaring bankruptcy does not alter the original delinquency or extend the time the account remains on the credit report. If the account was delinquent before being included in the bankruptcy, it will probably be deleted before the bankruptcy public record because the original delinquency date is typically earlier than the bankruptcy filing date.
Obtaining and Rebuilding Credit After Bankruptcy
Few weeks after you file for bankruptcy protection, creditors will send you credit offer for new credit. However, be aware that many new credit card offers will have low limits and high interest rates. In addition, they may contain high annual fees. As a result, review the offer terms carefully before signing up for a new credit card after bankruptcy.
Apply For New Credit
You may have to start with a secured card, which requires that you place a security deposit with the issuer to open the account. When you get a secured credit card, you deposit a certain amount of money in the bank that acts as collateral for the card. In exchange, you have a line of credit equal to the amount in the account. A secured credit card allows you to rebuild your credit because your payments are typically reported on your credit.Once you get the card, make sure to make timely payments and pay your bill in full every month. You don't have to carry a balance on your card to build good credit.
Add a Loan to Your Portfolio
Once you have gone a year or two post-bankruptcy, consider getting a car loan or a line of credit. If it's a car loan, buy a vehicle that is affordable and that you can pay off successfully. Shop around for the best rate, and keep in mind that once you have raised your credit scores, your next interest rate on a loan will likely be much lower.
Beware of Credit Repair Services
You may receive offers from credit repair services promising to help repair your credit. Make sure you thoroughly investigate these services before you use them. On our site, we recommend Lexington Law as we feel they are one of the few reputable companies.
Keep Your Credit Balances Low
Again, once you begin re-establishing credit, it is crucial to know the limits on your credit cards and to keep your balances well below them. You may have a very low limit due to your credit history but that's OK. Use your cards sparingly and continue paying the bill on time.