If all (or most) of your debts were discharged at the end of your bankruptcy case, you filed for
chapter 7 bankruptcy. This type of bankruptcy is sometimes referred to as a liquidation bankruptcy because some of your assets will be sold so that you can repay at least some of your debts. Chapter 7 bankruptcies will appear on your credit report for the next ten years.
When you first file for bankruptcy, you'll be required to take what is called the "
Means Test." This test will tell you whether it's feasible for you to repay
some of your debts or
none of your debts. In the event that you are capable of repaying at least
some of your debts, you'll file for Chapter 13 bankruptcy. This will allow you to retain possession of all of your property, and a repayment schedule that you can achieve will be drafted.
Chapter 13 bankruptcies stay on your credit report for seven years.
The fact that a bankruptcy is visible on a credit report for so long is a big deterrent to some debtors who could really benefit from a bankruptcy. The unknown is quite frightening - what will happen to you in the seven or ten years following your bankruptcy case?
We won't sugar coat it and tell you that filing for bankruptcy will immediately do good things to your credit score. The truth is that any bankruptcy will temporarily drop your credit score significantly. This is something you have to accept before you enter the process. All potential lenders will see that you filed for bankruptcy, and it may be quite difficult to get a substantial loan.
With that being said, one of the things we do for our clients is to help them rebuild their credit score after a bankruptcy.
You are not doomed! In fact, if you were really in over your head, filing for bankruptcy is one of the best decisions you could ever make. You've now freed up a lot more of your income and should have a much easier time paying your bills.
At the end of your bankruptcy case, your debts will either be wiped out (chapter 7) or renegotiated into a schedule that you'll be able to make payments on without going into further debt (chapter 13).
The lowest your credit score will ever dip is immediately after your bankruptcy case is finalized. The best part about that is that you have nowhere to go but up!
Rebuilding your credit score after bankruptcy
Naturally, you can't just wait seven to ten years for the bankruptcy to disappear from your credit report. You have a life to live in the meantime! Even with a bankruptcy on your credit report, raising your credit score can be accomplished. Use the following ideas to help boost your score:
- Check your credit report. First and foremost, request copies of your credit report from all three credit reporting agencies. This will give you a ground zero starting point and will also allow you to check for any errors. Make sure that all of your (formerly outstanding) debts no longer appear on your report if they were discharged in a chapter 7 bankruptcy. Also, be sure that any renegotiated debts are reported accurately if you filed for chapter 13. Continue checking your credit report regularly from here on out.
- Pay your bills on time. Before you even think about applying for a new credit card or loan, take several months (at minimum) to simply make sure your living expenses are paid in full and on time. This includes: mortgage/rent, utilities, cell phone, cable/satellite, internet connection, HOA fees, membership fees and any remaining debts (if they were reorganized in a chapter 13).
- Set up a budget. Aside from making sure the bills mentioned above are promptly paid, you can make sure you don't repeat any of your overspending habits by living on a rather strict budget. By allotting a specific amount of money for each of your monthly expenditures, you'll give yourself a safeguard against spending more than you can afford.
- Get new credit. In order for your credit score to rise faster, you'll have to prove that you can handle owning a credit card and making the necessary payments each month. A bankruptcy on your record means that getting a new credit card won't be easy, but you can apply for a secured card that is safeguarded by a deposit made by you. Every month that you successfully make your payment on time, this action will be reported to the credit bureaus, which will give your credit score a boost.
As time goes by and you manage to stay within your spending limits, you will see your credit score rise. Most banks and lenders will start to offer you lower interest rates again on an unsecured card once your score reaches 650 - some even at 600. If you still feel like you may lose spending control with a regular credit card,
don't apply for any. It's better to watch your score rise slowly than to find yourself in over your head in debt once again.
For more information about rebuilding your credit after a bankruptcy, reach out to
Veitengruber Law. We can also walk you through the process of filing for bankruptcy, and remember, we won't quit until your credit score is repaired to your level of satisfaction.