Bankruptcy is intended to give debtors some breathing room, and the chance at a fresh start. The bankruptcy process can allow debtors to discharge certain debts and restructure other obligations, to make them less of a month-to-month burden. This way, the debtor can move forward as a productive member of the economy once again – and often, that is going to include taking on new lines of credit over time.
For debtors looking to move on after bankruptcy, it’s important to plan ahead, and be strategic when it comes to taking on any new debts or establishing new credit. Looking to rebuild your credit after your bankruptcy discharge? Wondering what goes into applying for new credit after bankruptcy? Here are three important things to keep in mind:
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1.) Building Positive Financial Habits
During the bankruptcy process, you will be required to take a credit counseling course and a financial management course. In addition to the insights and education provided by your bankruptcy attorney, these courses can be a powerful first step in helping you get your finances on a more sound footing as you move forward after bankruptcy.
After the discharge of your Chapter 7 or Chapter 13 bankruptcy, it’s going to be important to adopt sound financial habits. Establishing a positive routine for spending and saving can help demonstrate to future lenders and credit agencies that you are responsible and trustworthy. More importantly, it can help you avoid falling into the same financial holes that may have led to your bankruptcy.
Broadly speaking, for individuals moving forward after bankruptcy, it may help to focus on setting a realistic budget and building their savings by taking commonsense steps like:
- Creating a list of goals and a realistic financial roadmap for the future
- Closely keeping track of expenses and avoiding overspending
- Avoiding unnecessary debts or new lines of credit
- Keeping up with existing liens, bills, and regular monthly payments
- Establishing a savings account and an emergency reserve fund
2.) The Importance of Monitoring Your Credit
Bankruptcy will almost certainly impact your credit score – but it may not be as dramatic, or as lasting, as many debtors expect. Broadly speaking, Chapter 7 filers can expect their bankruptcy to remain on their credit report for up to ten years, and Chapter 13 filers can expect their bankruptcy to be noted for up to seven years.
With that said, in both cases you may see individual accounts and debts fall off of your report well before that reporting period is up. Similarly, if you are able to establish sound financial habits and start rebuilding your credit after bankruptcy, your credit score may recover sooner than you might think. In fact, one report suggests that 40% of Americans are able to attain a credit score of over 640 just one year after filing for bankruptcy.
After the bankruptcy process wraps up, it’s important to closely monitor your credit moving forward – both immediately after bankruptcy, and down the line.
Generally speaking, it may help to first check your credit report about 90 days after the close of your bankruptcy process, to verify that delinquent accounts have been removed and to check and see if there are any errors or oversights, which you can dispute directly with the credit reporting agencies. Moving forward, consumers can obtain a free copy of their credit report from each of the three major credit bureaus once per year, and monitor their credit score using any number of services.
3.) Researching Different Ways to Add New Credit
Following the bankruptcy process, debtors often want to begin rebuilding their credit as quickly as possible. Generally speaking, you may be able to start applying for new lines of credit as soon as your bankruptcy discharge is complete. However, there may be reason to be cautious and patient.
For one thing, it’s important to be realistic about your spending and saving habits, to avoid overstretching yourself immediately after bankruptcy and to help set yourself up for a more secure financial future. At the same time, even if you receive credit card offers after bankruptcy, these potential credit lines may have terms that you find unfavorable, such as high annual fees, high annual percentage rates, or an extremely low credit limit.
After bankruptcy, building and maintaining good credit is incredibly important – and, as such, it’s not something to be entered into lightly. With that said, it may prove beneficial to look into methods that can allow you to rebuild your credit sustainably and responsibly. A few common credit options for those looking to move forward post-bankruptcy may include:
- Becoming an authorized user on a credit card. Becoming a designated “authorized user” on a family member’s credit card can allow you to develop your own credit on the back of the primary card holder’s spending habits and positive repayment history, without taking on a new debt of your own.
- Obtaining a secured credit card. A secured card allows consumers to gain access to the convenience of a credit card, while offering greater assurances and protection to the card issuer. When you get a secured card, you put down a deposit, typically several hundred dollars. The amount of the deposit then acts as the credit limit which you can borrow against (generally with the option of increasing your limit if you demonstrate that you are reliable by making monthly payments and keeping your balance low).
- Accepting a credit card or loan with co-signers. In this arrangement, you may have a friend or family member with superior credit act as a “co-signer” on your credit line. This person is then held responsible if you fail to make payments on time.
- Looking into credit builder loans. As U.S. News & World Report explains, a credit builder loan is a relatively new financial product “designed specifically for borrowers with poor or no credit who want to build their credit scores.” These loans, “are typically offered in modest amounts of about $300 to $1,000, and the repayment term is usually a year or less.” Over time, the payments you make are reported to the credit bureaus, allowing borrowers to establish a positive credit history.
Talking With an Experienced Bankruptcy Attorney
Above all, it’s important to remember that before, during, and after the bankruptcy process, you don’t have to go it alone. Here in Illinois, there are many moving pieces when it comes to bankruptcy – including understanding what it may take to get started, and, ultimately, how you can best move on after the process has concluded.
If you have any further questions or concerns about any aspect of the bankruptcy process – from determining if you qualify, to reestablishing your financial footing after discharge – don’t hesitate to get in touch with the attorneys and staff of the Gunderson Law Firm to continue the conversation.
Based in the heart of Chicago, our team has extensive experience in the area of bankruptcy law. Every day, we work to protect our clients’ assets to the highest degree possible under current laws, so that they can get the fresh start they not only need, but genuinely deserve. Drop us a line if you’d like to get in touch or set up a free initial consultation.