Bouncing back from financial distress with bankruptcy is the first step toward restoring creditworthiness. While you may think filing with an attorney ruins your credit history forever, it does the exact opposite.
A credit report with bankruptcy does look poor to potential lenders, but only for a period of time. The alternative is leaving your overwhelming debt, missed payments, and debt collection attempts on the record, which is even worse.
Not only do we believe bankruptcy is the better option, but we believe there’s hope for how it affects your family’s credit. Learn how to get a good credit score again, even when a bankruptcy dischargement stays on your credit for a while.
What Happens to your Credit when you File for Bankruptcy?
After filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy, your history of payment discouragement goes straight to public records. It tells your bank, employers, and lenders that the government wiped away debts you couldn’t pay on your own.
Credit reports and FICO scores resulting from bankruptcy imply financial irresponsibility and impact your credit in a negative way. You must accept this in order to move forward.
The credit score can drop as much as 200 points after filing for bankruptcy, and it can take up to a decade to reverse the damage.
What if a Credit Bureau Claimed Bankruptcy by Mistake?
When reviewing a credit report, you’ll see accounts affected by bankruptcy as “discharged” or “included in bankruptcy”.
Legal action with Chapter 7 or Chapter 13 types of bankruptcy zero these balances out rather than leaving them negative, giving you peace of mind.
The top 3 credit bureaus, Experian, Equifax, and TransUnion, all must agree that the bankruptcy has been wiped away before you can be in the clear. Otherwise, it remains on your credit and payment history.
Thankfully, that doesn’t stop you from taking action toward rebuilding your credit, even when the bankruptcy and missed payments are still on your records.
What Happens to Future Loan Applications When Filing for Bankruptcy?
Future lenders can reference these documents while working with you and choose to deny your application. They can even restrict your ability to receive certain types of loans so they can protect financial assets.
Higher interest rates for any car, home, or personal loan is a given. You can’t expect a lender to give the same low rates they provide to trustworthy clientele that have no record of missed payments or bankruptcy.
Finally, mortgage companies and other institutions you’d inquire for a loan can see this history for 10 years (Chapter 7) and 7 years (Chapter 13).
By working alongside a bankruptcy attorney, they can help you rebuild creditworthiness and choose a better path forward after forcefully discharging your debts.
How to Rebuild Credit after a Bankruptcy
Ultimately, rebuilding creditworthiness after bankruptcy is learning financial responsibility and executing it on a consistent, daily basis. With this, you’ll slip right back into the same spending and investing habits that got you bankurpt in the first place.
We recommend various incremental and major changes to begin restoring your credit report and boosting your score. It’s necessary to start small and work your way up since financial institutions need to see some level of improvement before they are willing to work with you.
Incremental Changes for Rebuilding Credit
Speak to a Financial Counselor
Above all the tips we have, speaking to a certified financial counselor is at the top of the list. They’ll sit down to review your bankruptcy, where you went wrong the first time, and create a plan for moving forward with finances.
Proving accountability and strategy, money management experts can assist your journey to improve your credit report.
Ask your Bankruptcy Attorney for Helpful References
Experienced bankruptcy attorneys are well-connected in the legal and financial worlds since they help clients discharge debts on a daily basis.
You should ask them about financial counselors, lenders that have sympathy for bankrupttcy, and other professionals that can help.
Lawyers are a wealth of knowledge and are more than happy to refer you to others that can walk you with after they finish the proceeding with you.
Sign-up for a Secured Credit Card
Unlike regular credit cards, secured credit cards are a safe way to taper your way into spending and borrowing money again. It restricts you to the amount in your debit account while considering your purchases as acts of “borrowing”.
You’ll notice positive results on your credit report with the score going up, just as a result of buying and spending responsibly.
Don’t Miss any Payments for Anything
Missing car, house, and other payments is the gateway to bankruptcy if you’re not careful. Our team recommends taking care of the bill days before it’s due, so the worry doesn’t linger in your mind anymore.
Relief washes over you, knowing you can afford everything that goes in and out of your bank account, especially post-bankruptcy.
Major Changes for Rebuilding Credit
Co-sign a Loan for a Car or Other Expensive Item
After you’ve built financial disciplines and seen your credit score go up, it’s time to change the dial more by applying for a major loan. It’s near impossible to receive a low-interest rate on your own financial merit, which is why we recommend co-signing with a family member or friend.
Will I be Able to Get Loans or Credit after I File for Bankruptcy?
While you do have the ability to obtain loans post-bankruptcy, credit card issuers take advantage of that by swarming your mailbox.
Dozens of offers arrive because these institutions understand you can’t file again for Chapter 7 or Chapter 13 for a long time. They want to take advantage of your bad choices by racking you up with high-interest debt.
Car lenders may not provide loans for a vehicle, although they might by paying more per month. Again, it’s wise to co-sign with somebody who has a positive financial record to get a lower rate.
Finally, mortgage companies offer home loans, such as the FHA Loan, that have less-strict credit score requirements and can obtain within a few years after bankruptcy.
File for Bankruptcy to Restore Your Credit
Facing off against impossible debts only deteriorates your credit report more than it is right now. Bankruptcy is a proven legal action that paves the way for restoring your credit, personal leadership, and financial responsibility.
Patrick McBurney has helped families struggling with bankruptcy and overwhelming debt since 1995. You’ll be in good hands with an expert that explains each part of the bankruptcy process and answers all questions.
He can also help you navigate other ramifications of filing for bankruptcy, such as stopping debt collectors. His team of experienced legal professionals is on your side and sees you through bankruptcy to the very end – when your credit is restored.
Talk to us today and meet in our East Washington office for a legal consultation. You can reach us by calling (509)-341-2302.