A common misconception about bankruptcy is that once your debt is discharged, your credit score is tarnished permanently—this simply isn’t the case. Discharging your debt through Chapter 7 or Chapter 13 bankruptcy can present you with the unique opportunity to repair your credit score quickly. In this article, we’ll review some things you can do once your bankruptcy petition has been accepted, so you can restore your credit and get a fresh financial start.
Double-Check Your Credit Report
It is important to review your credit report 30 days after you have received your discharge. Even though you may not be actively rebuilding credit 30 days after your case, you can at least verify that the negative credit history is being updated. As you probably know, you are entitled to request your free credit report once per year from each of the three major credit reporting agencies: Transunion, Equifax, and Experian. Additionally, it can be strategic to pull one report every three months to ensure you are monitoring your credit completely (and maximizing your free reports). However, these agencies (and your creditors) aren’t infallible.
If you pull your reports after you have received your discharge order this is your chance to review that the creditor is updating it correctly. All debt that was included in your bankruptcy, should report as such. If the report does not state that the debt was included in your bankruptcy and still shows a balance is owed, you can dispute that report directly with the credit reporting company. You should include a copy of your discharge order as your evidence.
Each year after, it is important to regularly check your credit. When you request your reports, review each individual comment, such as “30 days late,” “90 days late,” or any outstanding balances, and check them against your own documented records to make sure all of the information is accurate—if it is not, again you can go to that credit agency’s website to file a dispute, including any evidence you have that supports your claim. Once you do this, the creditor will have to demonstrate that their report was accurate. If they cannot, then the negative comments and credit score penalties will be stricken from your record.
Some additional tips for repairing your credit after a successful bankruptcy filing include:
- Making sure that any debts that were discharged through your bankruptcy filing are marked as “BK” or “included in a Chapter 7 Bankruptcy” on your credit report
- Set monthly spending budgets–and stick to them
- If you’re having difficulty getting unsecured credit, consider secured credit or a pre-paid credit card, but be wary of fine print and any additional charges
Use New Credit in Moderation
Coming out of bankruptcy, it can be tempting to avoid credit altogether, but this strategy won’t do much to help repair your credit score, even though it may be good for your immediate financial health.
Many individuals, after going through with bankruptcy, will receive offers for unsecured credit cards, and these can be a good opportunity to start repairing your credit—in moderation, of course. However, it is advisable to use caution when accepting solicitations from these creditors as they are aware that there are statutory requirements between bankruptcy filings (for example you cannot file another Chapter 7 bankruptcy until 8 years have passed from your previous case).
Even though credit card companies (and even some lenders) may be willing to lend to you, you still need to prove to them that you are capable of handling credit sustainably. In fact, there are even Federal mortgage programs that allow a debtor to get a new home mortgage as soon as 2 years after they file for bankruptcy.
It’s also important that if you choose to utilize the limited credit available to you after bankruptcy, you are still abiding by standard expectations. We recommend using a personal limit of 30% or less of the total credit available to you. For example, if your new unsecured credit card has a $2,000 limit on it, it should not carry a balance of over $600.
Be sure to not lose sight of some of the issues that might have gotten you into debt in the first place. This means paying your bills on time and using credit sparingly—each time you request more credit, a creditor will run your report, and your credit score will drop a few points each time you do it. Only utilize credit when absolutely necessary and ensure that you can pay back the loan on time.
Credit is ever-changing, so even if you manage to repair your credit after bankruptcy, that doesn’t mean your work is done—as long as you’re borrowing money from creditors, you’ll need to continue proving yourself as creditworthy. While most would consider this a burden, as someone trying to start fresh post-bankruptcy, this can be looked at as an opportunity to establish a solid financial foundation for the rest of your life.
If you’re currently struggling with unsecured debt or harassing calls from creditors, call Chris Wesner Law Office, LLC today for a free initial consultation at (937) 339-8001, We will work with you to find a debt management solution that meets your needs, so you can start rebuilding your credit and get a fresh start.