Three Steps for Rebuilding Your Credit After Bankruptcy

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One of the biggest misconceptions about bankruptcy is that it will ruin your credit. Although creditors may not trust you right away after filing, your bankruptcy will eventually disappear from your credit history. It’s important to keep in mind that creditors are more interested in your recent credit history than things that have happened before.

You can start rebuilding your credit in the interim. How do you go from here to there, then? What can you accomplish in the interim to convince creditors that you’re financially responsible? 

Even Good People Can Face Bad Financial Situations

Bankruptcies can happen for a variety of reasons. There are people who use their credit cards and then realize they can’t pay them back. There are those who have serious accidents in cars with people who only carry the minimum amount of insurance. The result is that they end up needing extensive rehabilitation and incurring major medical costs, all while being unable to work. They have no choice but to declare bankruptcy when they are stuck with the bill.

There are many reasons for a person to declare bankruptcy. Some of these reasons are not purely due to a lack of financial responsibility.

1. Repair Your Credit

Your bankruptcy will appear on your credit history for seven years ( chapter 13 ) or ten ( chapter 7 ). You can’t do anything about it. Give potential creditors another thing to think about.

You should be aware that your credit rating was already in pretty bad shape by the time your bankruptcy had been processed. The bankruptcy won’t hurt you as badly as you might think. Once the bankruptcy is settled, you will be able to remove any black marks, such as overdrawn credit limits and active credit accounts.

However, the bankruptcy itself will appear on your credit report. After you have filed for bankruptcy, it is important to make sure that all your accounts are paid off. If you don’t, the accounts will remain on your credit history after bankruptcy.

2. Secured Credit Cards and Secured Loans

Credit cards and secured loans will sound absurd. You give a bank or creditor $500. You give the credit card company a $500 deposit and they will extend a $500 credit line. The $500 can be used to buy items but it must be paid back. This way, you can keep a minimal balance on your card. You can use the $500 as collateral. The creditor may use the $500 as collateral if you fail to make payments.

This may seem like nothing at all, but the creditor will report this information on your credit file. You no longer have only black marks on the credit report. Instead, a company will vouch for you that you maintained a satisfactory credit agreement with them. It is important to rebuild your credit after bankruptcy.

The same principle applies to a secured loan. Credit cards can be a great way to build credit but only so far. You can either use collateral such as a car or other valuable assets or apply for a loan with a lender who works with high-risk clients. It is important to pay all of your monthly payments on time.

3. Monitor Your Credit Score and Your Progress

You’re now establishing good credit. From there, you can be more bold but still cautious. You do not want to go overboard financially, and you also want to ensure that you are making all of your payments on schedule. You can check your credit report to see how you are doing during this time. Be patient if you don’t immediately see results. Some financial institutions may be slow in updating your report. If you wait long enough, the situation will improve.

This post was written by Trey Wright, a Chapter 11 Bankruptcy Lawyer in Jacksonville FL! Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, specializing in bankruptcy law, estate planning, and business litigation.

 

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