Many people who file for bankruptcy already have a low credit score and/or are unable to obtain credit cards or a mortgage. With unpaid bills piling up and possible lawsuits from creditors, a person’s credit score continues to go down as time goes on.
After filing for bankruptcy, your credit score will lower at first
It is important to know that this is not in any way a permanent situation, and your bankruptcy attorney will advise you on how best to rebuild your credit and increase your score. Ultimately for the majority of people in a tough financial predicament, filing for bankruptcy will be the better choice than ignoring bills and missing more payments.
A Chapter 7 bankruptcy filing will remain on your credit report for 10 years. A Chapter 13 bankruptcy filing will remain on your credit report for 7 years.
Given the fact that a credit score can go up quickly once the proper steps are taken, you can begin to rebuild and repair your credit immediately.
Some ways to quickly and positively impact your credit (once you have filed bankruptcy) include:
- continuing to make monthly mortgage payments on time (if a Chapter 13 was filed),
- continuing to make all car payments on time (if you are keeping your car), and
- paying off any credit cards in full every month (for credit cards obtained after your bankruptcy filing).
Many credit card companies will offer credit cards to people with a bankruptcy filing because you have either reorganized your debt (Chapter 13) or had your debt discharged (Chapter 7). Therefore, you have less debt than many credit card holders. These credit card companies are more willing to take a risk on you because you have shown that you will be able to make your monthly payments.
If you file for bankruptcy and then rebuild your credit, you will ultimately have better credit in the long term versus continuing down the path of unpaid bills and getting deeper into debt. Mortgage lenders and credit card companies are much more willing to approve someone for a loan or a credit card if you have taken positive steps toward improving your situation in a proactive manner.