Rebuilding Credit May Be Faster Than You Think During & After Bankruptcy

One of the most difficult concepts to get past while filing for Chapter 7 or Chapter 13 bankruptcy is that your credit may be harmed. Usually, though, the reality is if you are in dire financial straits with debt continuing to amass, your credit is already in bad shape. You certainly are not alone, as millions in the US now battle unemployment. And while that may not be of much consolation when you are trying to pay the bills with little to no income, it is true that both consumer and household debt in the US have been continuing to rise for many consecutive quarters now—leading to increased delinquencies and defaults. After the massive wave of unemployment during the COVID-19 pandemic though, it is now truer than ever, and financial problems continue to escalate for a large portion of the population.

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You may be thinking about reorganizing your debts in Chapter 13 if you still have an income and enough to pay off debts in one payment to the bankruptcy trustee each month. If you are eligible though, you may be filing for Chapter 7 (often referred to as the liquidation bankruptcy) in hopes of seeing nearly all your unsecured debts discharged. There are differences in the consequences to your credit, as Chapter 7 completed bankruptcies stay on your credit report for ten years, while only seven years for a completed Chapter 13 bankruptcy.

You can begin making almost immediate changes, however, beginning with paying all your existing debts such as a mortgage or vehicle loan that you want to keep on time (these are the debts that will not be included in your discharge in a Chapter 7 if you reaffirm them). Although signing reaffirmation agreements in a Chapter 7 for either your home or car could be risky endeavors in some cases, a positive payment record will continue to be reported and reflected on your credit report.

It may be difficult to establish new credit after a bankruptcy filing but if you are able to do so, you might choose to take on one or two new credit cards, keep the balances low, and paid off on time each month. Taking out a small loan with a co-signer can be helpful to your credit score also. If you are not having any luck with attaining new credit to rebuild your score, consider a secured credit card that offers a little to no risk for the credit card corporation as you put in, for example, $400, and then that is your limit. You are then able to show that you can pay off any charges after that, and eventually, it may turn into a more conventional credit card situation—which in turn leads to an even better chance for you to keep building your credit back up.  However, keep in mind that during the three to five years of a Chapter 13 case you may not incur new debts without specific court approval for necessary items, which typically would not include credit card debt.

It is also recommended that you keep a sharp eye on your credit report. After all, if you are working hard to make sure that your credit is improving, every effort should be noticed by credit bureaus.  After your bankruptcy case is discharged, whether Chapter 7 or Chapter 13, you should check your report and make sure that your discharged debts are no longer showing a negative impact on the credit report.

You probably have many questions about bankruptcy, from wondering how much you will have to sacrifice (very little in most cases), to whether you will have to go to court. Speak with a skilled bankruptcy attorney from the offices of H. Lehman Franklin, P.C. Call now to learn more at 912-764-9616, or contact us online.