What happens after bankruptcy: a look at rebuilding credit after bankruptcy discharge

By Barbara Craig, Attorney at Law

Rebuilding credit after bankruptcy is a simple process that starts as soon as your file. Bankruptcy is not the death knell that many people believe. While filing bankruptcy hurts your credit rating and your ability to get credit, so does getting behind in your payments and having repossessions or foreclosures on your credit record.

rebuilding credit after bankruptcyAt least with filing bankruptcy, debts are wiped out in one event. The alternative is usually a series of settlements, debt repayment plans, and dealing with collection agencies for years to come. With a Chapter 7 Bankruptcy filing you can immediately stop all collection agency calls, start to recover from your previous financial decisions, and be debt free in four months or less.

Chapter 7 Bankruptcy will remain on your credit report for ten years after discharge, and a successful Chapter 13 Bankruptcy will remain on your report for seven years. But the process of rebuilding credit after bankruptcy begins immediately. In spite of blemishes on their credit records, many of my clients experience rapid improvement in their credit scores.

30 days after discharge

Shortly after receiving your discharge, you should pull your credit reports and verify that all the debt included in your bankruptcy petition is listed as discharged and shows zero balances. Any debt that was not included in your bankruptcy originally may be added to your case if you accidentally failed to include it in the original petition. Debts that were included but are still being reported as active debt should be disputed with the credit agencies.

Debts that were reaffirmed as part of your bankruptcy will remain on your credit report and should be reported as though the bankruptcy was never filed. These debts will help reestablish your credit after bankruptcy as you continue to make your payments on time.

90 – 180 days after discharge

Credit card offers and car loan opportunities will pour in during and after your bankruptcy filing. You should review these offers carefully before applying, as interest rates will be relatively high and there could be additional fees involved.

Three to six months after discharge, you should seek a new credit card with a low to moderate credit limit. The credit card will mostly likely need to be a secured card, backed by money you deposit with the issuing bank, which will be used to pay the balance in the event you fail to make your payments. After time, the secured card will become unsecured with your deposit returned to you, and/or your available credit limit may be increased.

Two years after discharge

If you are looking to purchase a new home after bankruptcy, mortgage lending guidelines require a 2-year waiting period after bankruptcy discharge and foreclosure. Look at this time as an opportunity to rebuild your credit and accumulate savings so you are in a stronger position to purchase a new home.

Even though credit offers will continue to come your way as your credit rating recovers, don’t extend yourself beyond your ability to completely repay new debt on a timely basis. Lenders frown upon on applicants who had debt eliminated in bankruptcy, received credit afterward, and then failed to make payments on time. Learn from the pre-bankruptcy mistakes you made and you will find that rebuilding credit after bankruptcy takes no time at all.

Five years after discharge

Your bankruptcy will continue to appear on your credit report for a few more years. But if you’ve managed your finances responsibly, 5 years after discharge it will be almost as though you never filed for bankruptcy. My clients often have much better credit ratings than they had even before their original financial troubles. And many have obtained financing for homes and autos at reasonable interest rates.

Are you letting worries about rebuilding credit after bankruptcy hold you back from filing? Contact Bankruptcy Attorney Barbara Craig to schedule a free bankruptcy consultation to discuss your financial situation and find out if bankruptcy is right for you. Serving clients in the South Bay area including Torrance, San Pedro, Lomita, Harbor City, Carson, Wilmington, Long Beach and other nearby communities.


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