Bankruptcy & Your Credit – How to Rebuild It

Dollar signsFiling for bankruptcy will probably not affect your credit as much as you think. If you are in a situation where bankruptcy is an option, your credit is probably bad already. So a bankruptcy may not do nearly as much damage as you may think.

All credit reports will show your bankruptcy for a period of 10 years. However, if you pay your bills on time for 18 months to 2 years, you will re-establish your credit rating and people will loan you money again. Maybe even sooner.  They may charge you a slightly higher interest rate, but they will most likely loan you the money.  After all, you probably don’t owe anyone else money, and you may not be able to file for bankruptcy for eight years.  There are even some loans where you can get a mortgage in a year or two depending if you qualify for certain programs.

To discovery everything you need to know about filing bankruptcy in Maryland, click here to read our Free Legal Consumer Guide on Bankruptcy in Maryland.

Good ways to re-establish your credit after bankruptcy are:

(1) Pay all your bills on time. Paying all your bills religiously for at least 2 years after your discharge is the number one way to re-establish your credit.

If you get a car loan, make sure you pay it on time, and in full, each and every month. Car loans are the number one type of debt that will affect your credit rating after filing bankruptcy.

(2) Check your credit report.  About 6 months after your bankruptcy your credit report should be showing the debts as being included in your bankruptcy.  But credit reports are often wrong.  Make sure to get a copy of your report.  AnnualCreditReport.com is a great place to start.  If there is an error make sure to request a correction.  The Federal Trade Commission has a great resource for Disputing Errors.  

(3) Get one or two credit cards, and be absolutely sure to pay them off every month. Many people who file for bankruptcy are amazed that they receive pre-approved credit cards in the mail after they get their discharge. That is because you cannot file Chapter 7 bankruptcy again for 8 years. They figure they will make money on you in the meantime. Resist the urge to open these extra accounts. Stick with two or three.  If you have gone a couple of months without using your card use it on your next trip to the grocery store.  Then go home and go online and pay off the card.

(4) You should make sure none of your checks bounce during this time. Be extra sure you have the money in the bank before writing the check.

Depending on the credit markets at the time you file you may even get letters offering you credit while your case is pending.  If you have troubles getting a credit card after your case you may need to look into a secured credit card.  If you are eligible to join a credit union this is a good place to start. credit unions often have some of the better rates on these secured cards.  

(5) Start Saving for emergencies.  One of the best ways to deal with an unexpected bill or financial emergency is to have some saving that you can tap.  Once you have set aside a thousand dollars or more you should think about putting this money in a Certificate of Deposit that you can borrow against.  While if may be a pain to have to go to the bank and get a loan, this extra step also means you aren’t going to dip into your savings unless it really is an emergency.  This type of loan also shows up on your credit report as an installment loan. Having some savings and  this type of loan can really help your score, and you are just paying yourself back.  

All of these actions will show a future creditor that you can handle your finances, and they will usually be more willing to extend you credit.  To make sure that happens be sure to take some time each year to review your finances.  See our guide on “How To Do An Annual Financial Review”.  If you would like we can even refer you to a mortgage lender who can help you get on the road to getting a mortgage for a new home.  

If you want to explore your bankrputcy options, contact us for a free consultation today.

About Southern Maryland Law

 

Andrews, Bongar, Gormley & Clagett is one of the oldest and largest law firms in Southern Maryland. We have been serving clients here for over 50 years. We have more attorneys and a larger staff than most other local law firms, so we can handle a wider variety of legal matters. Each attorney concentrates his or her practice in a few key areas, so you can be assured of the expertise you need.

 

But we are not so big that we forget about personal service! Your legal matter is unique, and requires a personalized approach. We will always remember that. If you have a legal issue, contact us today to schedule your consultation.