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Rebuilding Credit After Bankruptcy

13 August 2012

Almost every client asks me “how long will bankruptcy hurt my credit?”.  Unfortunately, there is no single answer and answering before a case is filed involves guessing the future.I sincerely wish I could tell my clients there is a magic way to rebuild damaged credit, but there isn’t.  In many cases, it isn’t even the bankruptcy that damages the credit as much as the history of unpaid bills.  Bankruptcy can actually be an important step to rebuilding, since it at least stops the bleeding.  The only honest answer is that there is no magic credit button.  Rebuilding credit is a lot like being on a financial diet.  What’s the answer to taking weight off and keeping it off?  Eat less and exercise more.  For financial purposes, it’s spend less and save more. scale

Rebuilding credit is a slow process.  If your income is high and your job is steady, it’s going to be easier.  If not, it’s going to be an up hill struggle.  Here are steps that may help speed the rebuilding process:

  • After discharge, get a copy of your credit report from http://www.annualcreditreport.com  This is the official freebie you can pull once a year.  I ask my clients to pull a credit report before filing.  In Northern Kentucky and Cincinnati, where I practice, it only takes three to four months to discharge a Chapter 7 bankruptcy, so you may need to wait to get a free one.  Make sure it’s accurate and protest any wrong information.
  • There are differences of opinion about whether reaffirming a debt in the bankruptcy will re-establish bankruptcy after the bankruptcy.  I believe it probably will, but reaffirming is a serious obligation.  Be sure to discuss the pros and cons with your lawyer.
  • After bankruptcy, instead of taking the terrible offers from vultures out to prey on the weak with outrageous interest rates and fees, get a secured credit card from your local bank.  You can draw from the credit limit and build up savings at the same time.  It’s a double win.
  • The most important thing you can do is pay your bills on time, all the time, after you file.  If you can do that, your credit will quickly improve.
The most important thing to realize is that rebuilding credit really is like losing weight.  It won’t happen overnight and there is no quick fix.  That said, with patience, discipline and better financial habits, bankruptcy really can be the first step to a better financial life for you and your family.


Bankruptcy, Frequently Asked Questions, Life after Discharge

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