When most people think of bankruptcy, one of the first things that comes to mind is the fear of a ruined credit score. The thought of never being able to buy a house, get a loan, or even secure a credit card can be overwhelming. But how much does bankruptcy really affect your credit? And for how long? In this post, we’ll explain how bankruptcy impacts your credit and provide practical advice for rebuilding your score after filing.
How Bankruptcy Affects Your Credit
Bankruptcy is a legal tool designed to give individuals a fresh start when they are overwhelmed with debt. While it can be incredibly helpful, it does have a lasting impact on your credit report. Generally, bankruptcy will remain on your credit report for 7 to 10 years, depending on the type of bankruptcy you file (Chapter 7 or Chapter 13). However, the effect on your credit is not as permanent as many fear.
Valerie Long, an experienced bankruptcy attorney, explains that most of her clients walk into her office already struggling with a bad credit score due to missed payments or high debt levels. After filing for bankruptcy, their score may dip initially, but it often improves once the discharged debt is removed from their report.
Think of it like getting a bad grade on an exam. It stings when you first see the result, but you can turn things around by taking proactive steps. The key is to focus on rebuilding your credit after the bankruptcy is filed.
Steps to Rebuild Your Credit After Bankruptcy
The good news is that you can rebuild your credit after bankruptcy with careful strategies and discipline. Here are a few practical ways to get started:
- Get a Secured Credit Card
Getting a secured credit card is one of the most recommended ways to rebuild credit after bankruptcy. This type of card requires you to make a deposit (for example, $300) for a credit line of the same amount. It is a great way to show you can manage credit responsibly. Use the card for small, regular purchases (like a full gas tank) and pay the balance in full and on time each month.
However, a word of caution: if you have difficulty controlling your spending, be careful with a secured card. Carrying a balance higher than 30% of your credit limit will hurt your credit score, even if you pay it off on time. - Keep Up with Car or Mortgage Payments
If you can keep your car or home after filing for bankruptcy, continue making on-time payments. This will help demonstrate that you are financially responsible and can manage debt effectively. Remember that some lenders may be reluctant to work with individuals who have filed for bankruptcy, but others will still be willing to help as long as you maintain a good payment history. - Monitor Your Credit Report
Staying on top of your credit report after filing for bankruptcy is crucial. Monitor your credit regularly to ensure that all debts included in the bankruptcy are marked as discharged and that there are no errors. You should receive a paper copy of your credit report from each of the three major credit bureaus about a month after your discharge.
If you notice any discrepancies, such as balances that haven’t been cleared, reach out to your bankruptcy attorney for assistance in correcting the errors. In addition, using credit monitoring apps can help you stay on top of changes to your report and track your progress. - Address Past-Due Student Loans
If you have student loans that were part of your financial difficulties, ignoring them can hurt your credit score. The best course of action is to contact your student loan servicer to discuss repayment or forbearance options. You can often enroll in a repayment plan that may even reduce your monthly payments to $0, allowing your loan to be reported as “in good standing” to the credit bureaus.
Ignoring the loans, however, will only cause further damage to your credit score, so it’s important to take proactive steps.
Can Bankruptcy Help You Get a Fresh Start?
Bankruptcy might seem intimidating and a permanent mark on your financial history, but it does not have to be the end of your financial future. If you fall behind on car payments, mortgage payments, or other debts, filing for bankruptcy can give you a fresh start. The road to rebuilding your credit may take time, but your credit score can improve with careful management.
Remember, bankruptcy is just one step in the process. By taking the right actions, such as using secured credit cards, keeping up with payments, and monitoring your credit, you can bounce back and work towards a healthy financial future.
If you’re considering bankruptcy and want guidance on your specific situation, it’s essential to speak with an experienced bankruptcy attorney who can provide personalized advice. Contact us today to learn more about how we can help you get started on your path to financial recovery.