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Rebuilding Your Credit After Bankruptcy

May 23, 2013 Leave a comment

What will bankruptcy do to my credit? This is probably the question most often asked by our clients and potential clients when they are considering bankruptcy. While each client will have a different experience based on their individual circumstances, the question to the answer remains the same. It is absolutely possible to rebuild your credit after filing for bankruptcy.

Bankruptcy is an option available to consumers and businesses to help them recover. It is not an end of the world scenario or a fork in the road as to whether or not they will ever be able to get credit in the future. Filing for bankruptcy will cause your credit score to drop considerably at the time of filing. However, it is possible and common to be able to rebuild your credit score within two or three years after a bankruptcy. While the bankruptcy remains on your credit report for ten years, it will not prevent you from being able to get credit. In fact, the best way to rebuild your credit is to use credit again.

A large factor in your ability to get credit is your income to debt ratio. After filing for bankruptcy and getting your past debts discharged, your income to debt ratio will probably be at its best level in a very long time. Many clients tell us they get credit card offers within weeks and sometimes days after filing or getting their debt discharge date. The important thing to realize is that the interest rates on these credit cards will be higher than they were before. Bankruptcy petitioners are required to complete a credit counseling course that will explain this and help you to guard against getting into the same situations that led to a bankruptcy. Using credit responsibly by buying based on needs instead of wants will help to keep your balances at levels you can handle. It will make you able to pay more than just the minimum payment, or the entire balance, and prevent the interest from tacking on to what you owe.

Living within your means is perhaps the most important step in rebuilding your credit after filing for bankruptcy. Since the economic recession hit a few years ago, nearly everyone has had to cut back on luxuries and everyday expenses to make ends meet. Nightly news stories and newspaper articles constantly show people who have been able to adjust and budget themselves into success and regained prosperity.

Whether it was a lost job, unforeseen medical expenses, a downturn in business, poor financial planning, or youthful inexperience that led you to needing to consider bankruptcy, the most important thing to remember is that bankruptcy is there to help you get back on your feet and not to ruin your credit for the rest of your life.

How Will Filing for Bankruptcy Affect My Credit Score? By St. Charles Bankruptcy Attorney Tobias Licker

Filing for bankruptcy can provide relief by allowing you a fresh financial start. When you file for bankruptcy you will stop the harassing phone calls from creditors and debt collection agencies, you will be discharged of most or all of your debt and you may even be able to keep your home. However, filing for bankruptcy is not all good news.

One of the main concerns about filing for bankruptcy is how this financial decision may affect an individual’s credit score. When creditors, insurance agencies and potential landlords run credit checks, they are looking for information about how financially reliable you are. They want to know how likely you are to follow through on your future financial obligations. The credit score is one of the most important aspects and you may be surprised to learn that filing for bankruptcy can actually raise your credit score in some cases.

The first thing that you should know is that a bankruptcy filing will show up on your credit report. The record for a Chapter 13 bankruptcy filing can remain in your credit history for up to seven years, and a Chapter 7 bankruptcy filing record can remain for up to 10 years. The fact that the bankruptcy filing shows on your credit report does not mean that you will not be able to qualify for anything that requires an average credit score or better. Most of our clients qualify for a mortgage or car loan within one or two years after filing for bankruptcy. Many clients who did not qualify for a loan before filing, qualify right after filing for a car loan. The interest rate is in most cases better that it was before filing of bankruptcy.

If you file for bankruptcy with a relatively high credit score you may see a drop in your credit score at first. The effects of the bankruptcy will lessen as time passes, and you can work your way back up to a high credit score by reestablishing your credit.

On the other hand, your credit score may actually rise if you file for bankruptcy with a relatively low credit score. If your credit score is low due to unpaid debts, late payments and high balances you should see a rise in your credit score when you file for bankruptcy if the accounts are documented properly. The accounts that are included in the discharged debt should be recorded as being included in your Chapter 7 or Chapter 13 bankruptcy filing. When these accounts are documented properly your credit report should be almost completely wiped clean of late payments, delinquent accounts and other derogatory remarks. If these accounts are not documented correctly after you file for bankruptcy you should contact the offending creditors to request changes so that all of your accounts are properly documented. In the case your creditor does not respond, you can complain to the credit bureau directly which then will investigate and contact the creditor.

If you are living in the St. Louis Metro Area and have questions about filing bankruptcy please contact us for a free no-obligation consultation. One of our four bankruptcy attorneys can meet with you in person in one of our offices in St. Louis, St. Charles (O’ Fallon, St. Peters, Wentzville), Florissant (North County) or Granite City (St. Louis Metro East).

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