Credit After Bankruptcy: Four Important Steps to Rebuilding Your Credit

Common Misconceptions about Credit After Bankruptcy
Rebuilding credit after bankruptcy is one of the biggest fears that my clients have. There is so much misinformation about bankruptcy and credit that most of these fears are not realistic.  Some people believe that filing bankruptcy will mean that they will never be able to get credit again.  Others are convinced that they will not be able to get credit for at least 7 years–how long they think the bankruptcy will be on their credit report. Many don’t care. They know their credit has already “hit bottom” and the bankruptcy won’t make any difference.
Facts About Credit After Bankruptcy
How long a bankruptcy stays on the credit report depends on the type of bankruptcy filed. The law allows the credit bureaus to report the bankruptcy for 10 years from the date the bankruptcy is filed. The credit bureaus don’t have to report the bankruptcy that long–they just cannot report it any longer. Their current policy is to report a Chapter 7 bankruptcy for the full ten years.  Chapter 13 is different. The credit bureaus report a Chapter 13 bankruptcy on their reports for 7 years. However, one of the major credit bureaus will report a dismissed Chapter 13 for ten years.
How Long Will it Take to Get Credit After Bankruptcy?
There is really no fair answer to this question. Some people are able to reestablish credit immediately after their bankruptcy. Others struggle for several years. The opinion of most of the credit professionals I have spoken to about this say the average is about two years for a person to reestablish their credit to the point that they can get credit with fair terms. A mortgage lender suggested that the Federal Housing Administration (FHA) is a good guideline.  Their current rules require that a Chapter 7 bankruptcy discharge be at least two years old in order to qualify for a home mortgage. The rules for a Chapter 13 allow you to qualify for an FHA mortgage one year after the case is filed. The FHA rules are summarized on their website here: FHA rules for mortgages and bankruptcy.
How to Rebuild Credit After Bankruptcy
You will notice that the FHA rules require that you have reestablished some credit prior to meeting the rules for their program. This does not require that your credit be back to normal. It just means that you have one or two new accounts that are showing positively after your bankruptcy and that you not have new credit problems after your bankruptcy. There are four steps to making this happen.
Step One: Get your credit reports
After you receive your bankruptcy discharge you need to make sure that the discharged debt is not holding you back. Do this by ordering a copy of your credit report from all three of the major credit bureaus. All of the information you need about how to contact them is available from the FDIC’s website here: Credit Bureau Information. We help all of our clients complete this first step.
Step Two:  Challenge any discharged account that shows a balance
The bankruptcy is not going to erase your discharged accounts. They can still be reported. What they cannot do is report that you still owe any money. When they are reported with a zero balance and a notation that the account was included in bankruptcy it is being reported correctly. Too often people will find that an account is still being reported with a delinquent balance owed. These need to be challenged by filing a dispute with the credit bureau. If the creditor will not correct the inaccurate information it would be a good idea to see an attorney. This step is critical and explains why we ask our clients to send us copies of their credit reports.
Step Three: Apply for a Secured Credit Card Account
These accounts are easy to get after bankruptcy. A secured account requires that you deposit into a savings account money to act as collateral for the credit card. Do some research on the bank that you are considering opening an account with. Also, make sure that the bank reports their accounts to at least one of the major credit bureaus. Not all do. Also, beware of scams when looking for an account.
Step Four: Use the Account to reestablish your credit after bankruptcy
Just having the account is not enough. I recommend that you use the account every month and pay it off every month. This positive activity will do far more for your credit score than having several inactive accounts.
Once you follow these four steps you will see a significant increase in your credit score and discover that getting credit after bankruptcy is not nearly as difficult as you feared. Repeat step one and two every six months for a couple of years to make sure that nothing negative is being reported illegally. Before you know it you won’t have any trouble being approved for credit that you can reasonably afford.
Mesa Bankruptcy Lawyer: Free Appointment
Please let us know what you think of this information or have other ideas that we can pass along. We have spent a lot of time researching and investigating how bankruptcy affects credit because we want to be able to help our clients reestablish their credit and put the bankruptcy behind them. When you are seriously considering bankruptcy call us to schedule a free appointment. The number is 480-820-0800. We will continue to help even after the bankruptcy is over.
 
 
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