Many individuals delay filing for bankruptcy out of fear it will destroy their credit rating, permanently blocking them from securing loans or buying a home. While a bankruptcy filing will remain on your credit reports for a few years, this does not mean you are barred from receiving credit from lenders. Nor does it mean you cannot take positive steps to improve your credit rating right away.
Chapter 7 versus Chapter 13
One of the first things you will need to work out with the help of your bankruptcy lawyer is whether to file Chapter 7 or Chapter 13 bankruptcy protection. Part of making that decision includes knowing how long each remains on your credit report.
Chapter 7 usually remains on your credit report for ten years, starting from the date you file. While Chapter 13 may also stay on for up to ten years, these customarily come off after seven years, provided you complete the terms of the filing successfully. The primary reason for the difference is simple — creditors want to encourage consumers to pay back at least some of their debts, which a Chapter 13 plan supports.
Improving your chances of getting credit after bankruptcy
Whatever form of bankruptcy you choose, you can demonstrate to potential creditors that you have learned from your past mistakes and are qualified to receive a loan, mortgage or credit card.
- Spend within your means. From the smallest purchases up, ask yourself:
- Is this a want or a need?
- Is there a more reasonably priced option available?
- How many payments will I have to make?
- What can/will I give up in order to afford this?
- Build your savings. Even if you are only able to put a small amount into savings with each paycheck, make sure you do so. You need to build up a financial cushion and if a mortgage company or lender is evaluating whether to take a risk on you, maintaining a savings account will help.
- Keep track of your credit rating. Regular review of your credit reports from the three main reporting firms (Equifax, Experian and TransUnion) is important. Make sure all of the entries are accurate, especially if you have a common name. See which creditors were and were not discharged under the terms of your bankruptcy and contact the reporting agency if you catch any errors.
- Rebuild your credit. Although it may seem counterintuitive, look into applying for a credit card or two. Make sure to use them just enough to have something to pay off each month or within two to three months while making minimum payments. By demonstrating you can meet your credit obligations, you will show lenders you can be trusted. You will also gradually improve your overall credit rating, so long as you don’t miss any payments.
One of our consumer bankruptcy attorneys will be happy to provide additional advice for moving past your bankruptcy and recovering your good credit standing.