Most people believe that if you file bankruptcy your credit will be ruined. While it is true that filing a bankruptcy case will affect your credit, it does not mean that you cannot re-establish credit after your bankruptcy case is over.
Most people who file bankruptcy have already taken a hit on their credit record. Late payments, repossessions and/or judgments all have a negative impact on your credit score. Filing bankruptcy also will normally lower your credit score initially but once you receive a discharge you can work at rebuilding your credit.
If you file a bankruptcy case, the bankruptcy will remain on your credit report for up to 10 years. It does not, however, take 10 years to re-establish a positive credit rating. It is true that once you file a bankruptcy your credit score will dip, but once you receive a discharge in your bankruptcy case the debts on your credit report should reflect a balance of zero. We normally recommend that a few months after your bankruptcy discharge you get a copy of your credit report from the three major credit bureaus: Equifax, Experian, and Trans Union. Check to make sure that all the debts listed show a classification of discharged in bankruptcy with a balance of zero. There should be no classifications of open, delinquent or in collection reported after your bankruptcy was filed. If you find any classifications are incorrect you have a right to dispute this issue with the credit bureau. You also may report any other errors you find in your credit report. Everyone is entitled to receive a free credit report from each of the bureaus once a year by going to www.annualcreditreport.com.
Part of your credit score is determined by your history of paying your debts on time and another part is made up based on available credit. As you start incurring new debts you want to make sure you make all your payments timely and that you don’t incur too much debt and get in over your head. To build your credit the right way we recommend that you consider using a secured credit card. Normally with a secured credit card you have to put up a small deposit [such as $300] to establish a line of credit. Your credit limit will normally be equal to the amount of your deposit less any fees. This card should be used to make small purchases in [like charging gas for your vehicle] and the entire balance should be paid in full and on time each month. Normally after several months of using and paying the card in full every month, your credit limit will be raised and you will be on the way to start rebuilding your credit score.
Remember after filing your bankruptcy case and receiving a discharge, you actually may become more appealing to prospective lenders because you no longer have debt and you can only receive a discharge through chapter 7 once every eight years. We have had mortgage brokers indicate to us that they normally can help someone get a mortgage after they’ve been out of their bankruptcy case for two years.
Many times it’s easier to file bankruptcy and rebuild your credit than to struggle trying to work your way out of the financial hole that’s been created. If you are tired of struggling with overwhelming financial debt and want to see if bankruptcy can offer you a fresh start, contact us today for a free case evaluation.