Repairing Your Credit After Filing for Bankruptcy
July 20, 2023
It’s only natural to feel apprehensive before filing for bankruptcy. After all, this is a big decision that can have lasting effects on your finances. Although the long-term effects are largely positive, there are some short-term effects that you’ll need to be aware of. Specifically, you should know about how bankruptcy may affect your credit score and how to rebuild your credit after bankruptcy.
You don’t have to go through this process alone. If you’d like to speak with a bankruptcy attorney about how to rebuild credit after a Chapter 7 bankruptcy or Chapter 13 bankruptcy filing, reach out to us at Kinnaird Law Firm. Our bankruptcy attorneys are ready to help those in and around the Colorado Springs area, including Douglas County, El Paso County, and the rest of Colorado.
How Long Does a Bankruptcy Stay on Your Credit Report?
The length of time a bankruptcy declaration will stay on a credit report will vary depending on the type of bankruptcy you pursue.
Chapter 7: Most individuals file for Chapter 7 bankruptcy, commonly referred to as “liquidation” bankruptcy. With Chapter 7, the filer must sell off any non-exempt assets and use these proceeds to pay off creditors before any debt will be discharged. That said, the majority of filers will not have to sell off any assets. When you file liquidation bankruptcy, it will generally stay on your credit report for 10 years.
Chapter 13: For individuals who have assets they want to protect or who make too much money to qualify for Chapter 7, they may decide to file for Chapter 13 bankruptcy (also called a “wage earners” plan). You do not have to liquidate your assets under Chapter 13. Instead, you establish a repayment plan that consolidates all your outstanding debt into one payment. You must adhere to this plan for three to five years. Typically, a Chapter 13 filing stays on your credit report for seven years.
Does that Mean I Can’t Do Anything Requiring Credit for 7-10 Years?
You may be surprised to hear that it can take up to a decade for your bankruptcy to fall off your credit report. However, just because the bankruptcy will still show up during this time doesn’t mean that you won’t be able to do anything requiring credit until this period is up. What you are able to do will depend on your specific circumstances.
For example, it’s sometimes possible to purchase a home within one to two years after filing for Chapter 13 bankruptcy. You may even be able to purchase a vehicle within six months of a Chapter 13 filing, or as few as four months with a Chapter 7 filing. Those who file Chapter 7 may also be able to buy a house two to four years after the discharge of their case.
What Steps Can I Take to Rebuild Credit?
It is possible to rebuild your credit while your bankruptcy case still appears on your credit report. It will require you to stick to a plan, though. Below are some basic steps you can take:
Double check your credit report: After your bankruptcy filing has gone through, you’ll want to check your credit report to make sure the correct accounts were reported as discharged. If this is not done, they could continue to lower your score. You should also perform a second review after the 7 or 10 years have elapsed (depending on whether you filed Chapter 7 or 13) to ensure the bankruptcy has fallen off.
Credit builder loan: See if you qualify for a credit builder loan at your local bank or credit union. These loans are specifically designed for those who are trying to improve their financial situation and rebuild their credit. Essentially, this is a small loan (around $1,000) that is placed into a savings account where you make fixed payments. With each on-time payment, you will slowly rebuild your credit.
Secured credit cards: A secured credit card is another relatively easy way to rebuild credit while sticking to a tight budget. To use this type of card, you place a set amount in the account along with a deposit of a few hundred dollars. You can then use the card to make purchases that can benefit your credit. However, if you fail to pay your bills, the bank that issued you the card can keep the deposit.
Traditional credit cards: Although it can take two to three years after a bankruptcy filing to qualify for a traditional credit card, you may want to apply for one to continue rebuilding your credit score. You will likely only qualify for cards with higher interest rates, so it’s essential you make all payments on time and don’t overspend.
Helping You Create a Brighter Future
If you live in the Colorado Springs, Colorado, area and would like to learn more about how a bankruptcy filing will affect your credit score, reach out to our team. At Kinnaird Law Firm, we’re ready to help you move forward.