Can I Rebuild My Credit after Bankruptcy? The Answer is Yes!
Usually within a year of filing bankruptcy, your credit record will improve substantially. You will become a better credit risk than you were prior to the bankruptcy. For many, a bankruptcy filing can be the first step toward gaining better credit and financial freedom. Given our clients financial and other struggles, many are surprised to see a minimal decline in their FICO score post bankruptcy.
The fact that bankruptcy does not lower your credit score by much may seem difficult to understand. In fact, your credit score will recover faster after a bankruptcy filing, and usually faster than you might expect. Most of our clients qualify for a mortgage within a couple years of bankruptcy (so long as income is strong enough to support a mortgage payment and some down payment is saved).
Once you complete your case and your bankruptcy is discharged all of your old debt will be eliminated. You will have a Fresh Start! Most creditors will see this fresh start and lack of other debt as a positive. One Caveat—creditors now want evidence that you can handle credit going forward. For this reason, after you file bankruptcy it will be extremely important that you take some specific steps to begin to improve your credit.
Without the benefit of bankruptcy, bad credit records such as delinquencies, too much outstanding credit, slow pays, etc. are all negative marks that will remain on your credit record for 10 years. In most cases, although the creditor may not be actively pursuing your debt, the debt remains valid and open to collection through wage garnishment or bank account seizure. Bankruptcy solves this problem because it eliminates or discharges your debt. After bankruptcy, your financial situation will be far better since you will no longer be shuffling funds in an attempt to cover all the bills. After bankruptcy, our clients get super excited to create a new budget… and that is a budget that includes putting money into a savings account!
After completing your bankruptcy your credit and your life will be on the road to improvement. Initially, the bankruptcy will be a hit on your credit score but in the long run, the notation “discharged in bankruptcy” is much better than having your accounts reported as delinquent by your creditors. We recommend that soon after your bankruptcy discharge you get a copy of your credit report. Review this report carefully, check to make sure that the debts you included in your bankruptcy are reported to be DISCHARGED with a ZERO balance. Dispute any accounts that have not been updated.
Depending on when you file Chapter 7 or 13, a bankruptcy will stay on your credit for 7-10 years. Despite this, you will soon have the opportunity to rebuild your credit. Some companies cater to those who have a bankruptcy by offering secured credit, low credit lines and high interest. If you use this credit wisely and make all your payments on time you will prove that you have become a good credit risk.
What Factors Will Affect My Ability to get Credit?
Four factors are considered by a lender: Income, Job History, Credit Score and Debt-to-Income Ratio.
After Bankruptcy We Encourage Our Clients To:
- Periodically monitor your credit record and dispute errors.
- Make “on time” payments.
- Maintain a stable job history.
- Deliberately and thoughtfully apply for new credit. Many with credit bruises can get secured credit cards, and gas or retail cards. If you get turned down STOP, wait 6 months and try again.
- Use no more than 10-30% of your available credit.
About 35% of your credit score is based upon your payment history. So make any payments on reaffirmed debts, usually your car and mortgage payment in full and on time.
About 30% of your credit score is based on amounts owed. Prior to bankruptcy, when credit was maxed out your credit score was lower. With this debt now erased in bankruptcy, this score should improve over time.
The balance of your credit score is based upon your length of credit history, your applications for new credit, and your credit mix.
If you are surrendering a car in bankruptcy , you can improve these scores by possibly financing a portion of your replacement car. You can also get a secured credit card and charge a small amount and pay it off every month. Pay your rent and utilites on time as well.
As thousands of clients can attest. a bankruptcy filing does not result in a zero credit future. There is an entire industry that specializes in credit to post bankruptcy consumers. These loans are often at above market rates, so you must be cautious, but they can part of your strategy as you work toward a better financial future. Review all options with your attorney prior to borrowing for a replacement car.
Our office also files “Motions to Redeem” for clients who are upside down on their automobile balances. Such a motion allows you to pay the current amount of the value of the car and discharge the “underwater” amount in Chapter 7 bankruptcy. Of course, our clients don’t have the lump sum of cash available to “redeem”, but there are specialty companies who will loan that amount to you. It will be at a higher interest rate, but when we run the numbers, it almost always works better even at the higher rate to discharge the large underwater amount. Repaying on this new car loan (for your same car) will increase your credit score over time.
Are You Ready for a New Start? We Want to Help!
The lawyers of Keegan & Co. Attorneys have over 50 years combined experience helping people just like you resolve overwhelming debt issues. Our attorneys have handled several thousand bankruptcy cases from the simple to the most complex. In all likelihood, we’ve seen your situation or problems dozens of times before. We can almost always help, even if it’s just advice on how to avoid bankruptcy.
The Covid19 crises and the need for social distancing will not affect your ability to file for bankruptcy. The bankruptcy court is accepting and hearing cases, our clients have not experienced any delays getting relief from debt. If you are unable to meet in person, our attorneys are happy to schedule a consultation over the telephone.
People are surprised to learn just how quick and easy the bankruptcy process is! You need to provide us with certain documents and it is required that you take two short online credit counseling classes. Our attorneys handle the rest! You and your attorney generally are required to appear for just one court hearing.
Ready to Learn how Bankruptcy Can Help You?
Our consultations are free and at Keegan & Co Attorneys your consultation will always be with an experienced attorney, it will never be with a paralegal or secretary. Call 513-752-3900 to schedule your personal consultation. We look forward to meeting you!