Is It Possible to Rebuild Credit After Bankruptcy?

One reason people hesitate filing for bankruptcy is fear that their credit score will tank. In our experience, these fears are overblown. Admittedly, most people see a drop in their score after filing. But the size of that hit will depend on many factors, including your current credit profile.

The good news is any drop is temporary. As we explain below, diligent debtors can begin to rebuild their credit by taking a few sensible steps. It’s possible to get your score back up into the 600s or even 700s in as little as 18 months. Call Resolve Law Firm to discuss whether bankruptcy is the right option for you. An Orange County bankruptcy attorney with our firm will walk you through the options and address any fears or concerns.

How Much Will Your Credit Fall after Filing for Bankruptcy?

There’s no one answer to this question. Someone with a high credit score will suffer more of a fall than someone whose credit is already in the toilet.

Believe it or not, some indebted consumers manage to scrape together the minimum monthly payment on their debts, so they never fall behind. Even though they are in distress, their credit score could be in the 700s. After filing for bankruptcy, it’s not unusual for their score to fall 300 points.

Other debtors will have a shorter distance to fall. Your score could be shot already because you are already in default on multiple loans and possibly in collections. With a score in the 400s already, you might fall only 100 points.

Remember: peace of mind and financial freedom are more important than a credit score. Some people get ulcers trying to stay on top of their monthly payments. It’s almost always the smart choice to take a temporary hit to your credit than to continue to make minimum payments for years.

How to Rebuild Your Credit Score

Bankruptcy filers will not be able to rebuild their credit score overnight. But if you follow these tried and trued strategies, you can watch your score rise slowly over the ensuing 18-24 months.

1.       Get a secured credit card. It’s highly unlikely a bank will issue an unsecured card, but they might agree to a secured card. To get one, you deposit a certain sum of money with the bank, usually $500. This represents your credit limit. The card is secured by the deposit, so the bank will take the money if you default. Secured credit cards are a great first step, but if you can’t get one, try to get a credit builder loan at a bank or else ask to be an authorized user on someone’s card.
2.       Pay off your balance in full each month. You won’t rebuild your credit unless you use the card responsibly. That means never going over your limit and paying the balance in full each month.
3.       Obtain other credit. After using a secured card in a sensible manner, your credit score will begin to climb slowly. Try to get other credit, such as a small personal loan. You might even get a loan with a cosigner. Eventually, you might qualify for an unsecured credit card, even with a very low limit. Take advantage of any offers and remember to always pay your balance off each month.
4.       Report other payments to the credit bureaus. You can use Experian Boost to report utility, rent, and other monthly payments, which will help juice your score—provided you are making timely payments.
5.       Increase your savings. This will help you weather any unforeseen disasters. For example, your car might break down or you lose your job. You don’t want disasters like this to force you to miss credit card payments. Build a nest egg to help tide you over.
6.       Address student loans. These loans don’t dramatically affect your credit score, but you don’t want to default. Chances are these loans survived your bankruptcy, so take steps to address them. You might go onto a repayment plan based on income. By staying current on student loans, you avoid harming your credit.

These are sensible steps anyone can follow. We have seen people raise their credit scores into the 600s after a year of sensible and careful use. Others can even get into the 700s after two years of filing for bankruptcy.

Is Bankruptcy Worth the Hit to Your Credit?

Yes. That’s the simple answer.  If you are staying awake at night worried about debt, then you should try sensible solutions. Bankruptcy is at the top of the list. A Chapter 7 bankruptcy can swiftly eliminate the most common debts, including credit cards and medical debt. You won’t have to worry about them anymore.

Given how rapidly people can rebuild credit, it’s better to take the leap and file for bankruptcy protection instead of dragging out loan repayment. Paying only the minimum on your debts each month can ultimately cost you thousands of dollars more than if you had simply filed for bankruptcy.

Some people dream of buying a home or car, so they want to keep their credit good. But if you are struggling with debt, the odds of buying a home are slim, in any event. Why not clean out some of the debt and put yourself in a better position to buy a home a few years down the road?

Speak with an Orange County Bankruptcy Lawyer in a Free Consultation

Resolve Law Firm opened its doors to help distressed consumers like you get a fresh start by tackling some of the most annoying debts. If you’ve got credit card or other unsecured debt, now is the time to finally address it. Don’t drag out the process—call our law firm to speak with an experienced bankruptcy attorney at our firm. In a consultation, we can discuss your financial goals and determine if filing for bankruptcy is right for you. There are multiple options consumers must consider, so call our firm today to schedule your free, one-on-one consultation.