How Do I Rebuild Credit After Bankruptcy?

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• Credit Rebuilding Important to Persons Considering Debt Relief Options
• Where a Client Already Has Credit Issues, Bankruptcy Itself Can Clear the Way for Better Credit
• Methods of Rebuilding Credit Post-Bankruptcy

Persons and businesses contemplating filing for bankruptcy protection are often undergoing serious financial problems that have already, or will shortly in the future, appear on their credit reports. While a bankruptcy filing would also appear on a person’s credit report, the bankruptcy filing has the advantage of dealing with and potentially resolving some of the financial problems inherent in the situation. Therefore, after a bankruptcy filing, a person is often better situated to repay new creditors and in time can be a better credit risk than they were prior to the bankruptcy filing. Having regular income, paying bills on time after the bankruptcy case and making more of an effort to start small credit accounts that can register post-bankruptcy good credit information, all can help rebuild credit. Another method of rebuilding credit is credit repair, which is a service provided by our office, where erroneous or inaccurate information on the credit report makes it harder to rebuild credit.

Credit Rebuilding Important to Persons Considering Debt Relief Options –

Where persons are considering debt relief options, they are usually also very concerned about their overall credit, credit score and credit report, despite the actual credit problems they have faced. Realistically they realize that they need to improve their present economic situation in terms of the actual debt they owe before they can look at how it appears to others and how it is reported. However, when they assess options in terms of restoring credit, bankruptcy and/or creditor negotiations each seem to have advantages and disadvantages. what is clear, is that where the debt load is high and the capacity to quickly pay it off or settle all or most of it is low, it makes sense to consider bankruptcy options. Negotiation and settlement options are often not enough of a break in terms of what is really owed to ultimately help enough with appearances from the standpoint of credit improvement. Bankruptcy is a much greater option for resolving debt and rebuilding credit since it addresses and eliminates the actual problems: the overwhelming and underlying debt.

Where a Client Already Has Credit Issues, Bankruptcy Itself Can Clear the Way for Better Credit –

Any financial transactions in which you are engaged may affect your credit report. Most clients inquiring about bankruptcy already have many entries on their credit report which show that they are in financial hardship. Such entries have already affected the client’s credit and while the bankruptcy case will also indicate that the client had financial hardship, the bankruptcy case  will also ease the situation by helping  the client  eliminate the debt that is the cause of such hardship. Essentially the client after having eliminating their overwhelming obligations in the bankruptcy case, can now concentrate on rebuilding their credit, which usually takes 6 months to 2 years. Although the notation that there was a bankruptcy filing will remain on the client’s credit report for 10 years, this is the same amount of time that any judgment would remain on the credit report. Therefore, the difference between  judgments on your credit report and a bankruptcy filing on your credit report is that the bankruptcy filing says that you already eliminated your problematic debt obligations and that the financial hardship was in the past. A  judgment, on the other hand,  says that your debt obligation is ongoing, and that your situation may be too risky and uncertain for creditors to give you new credit.

The question is whether you have debt that is already in collections or is about to be in arrears? For most persons contemplating bankruptcy and/or other debt relief options the debt is already hard to manage and is either late or getting out of control. If so, a bankruptcy case, by eliminating or reorganizing problematic debt, can with time help you to  restore your credit by eliminating the source of  your financial hardship.

Methods of Rebuilding Credit Post-Bankruptcy –

Maintaining good financial habits and practices post-bankruptcy can help a person more quickly rebuild their credit as follows:

1. Maintain a Healthy, Positive Income Flow – It is important for the person seeking to rebuild their credit to have a regular and sufficient income. This is important both for the purpose of new credit applications, that would allow for new sources of credit, and for the timely payment of post-bankruptcy bills, to have a healthy, positive income flow. Safe, steady work, even if it is not a dream job, is better than higher risk and less steady pursuits.
2. Paying Post-Bankruptcy Bills Timely – After the bankruptcy case, bills need to be managed so that they are paid timely and so that the amount of bills does not exceed a level of comfort based on expected income levels. The timely payments on secured debts, like vehicles and mortgages, on rent/leasing obligations and on new unsecured debts, can go a long way toward restoring credit.
3. Securing New Credit Sources – For the same reasons as paying existing obligations timely post-bankruptcy, it is also important to apply for, obtain and maintain timely payments on new credit sources. New vehicle obligations, whether they are financed or leased, and new housing rental obligations, timely paid help rebuild credit. So do new unsecured obligations, which can be credit cards, debt cards with an overdraft option, and personal loans. Credit cards that are easier to acquire are from business sponsoring programs cards from department stores, gas stations, airlines, car rentals, and others promoting their own cards and reward programs. Because the obligations would be sought post-bankruptcy, it is acceptable if in the early stages of credit rebuilding that the credit comes with a higher interest rate, larger downpayment and harsher lateness penalties. Some bank credit cards can be obtained more easily under secured credit programs where a certain amount in a bank account is held as security for the credit card.
4. Credit Repair – One of the services our law firm offers is credit repair. Credit repair can help rebuilding credit post-bankruptcy if there are items on the credit report that can be improved or corrected so that the information changed is more positive about the client’s credit history. Credit repair is most helpful when either a) inaccurate, b) erroneous, and/or c). disputed information without proof/documentation, significantly diminish from the client’s credit.
5. Regularly Checking/Monitoring Credit – This is important to assess progress with rebuilding credit and what items are holding back the client and what items are improving the client’s situation.

A bankruptcy attorney can advise persons filing for bankruptcy protection as to the methods by which they can rebuild their credit rating.

Please call us at (631) 271-3737, or e-mail us at [email protected] for a free consultation to discuss such legal options in greater detail.