Rebuilding Credit After Bankruptcy

According to the Wall Street Journal, in 2009 over 1.4 million people filed for consumer bankruptcy. Though experts believed the number of people filing for bankruptcy protection would rise in 2010, it has been much larger than expected.

The American Bankruptcy Institute predicted that 1.6 million people would file for bankruptcy in 2010. But by the end of June, there were already more than 1.5 million consumer bankruptcies, pushing filings to levels not seen since the substantial 2005 changes to bankruptcy law.

If you are one of the millions considering bankruptcy, your credit score should be the least of your concerns; you can repair your credit after bankruptcy. In many cases, your credit score actually improves after filing because you are no longer saddled with debt. You can also improve your credit by reviewing your credit reports, obtaining new lines of credit and working with an attorney.

Review Your Credit Reports

First, review your credit reports for accuracy. Debts that are liquidated as part of the bankruptcy should be properly designated; thus, when potential lenders run your credit reports, they will know that these debts have been discharged and that you are no longer responsible for them. It is also important to check your credit reports periodically and review for errors. You can then request that any errors be removed.

Obtain New Credit Lines

Next, obtain a new line of credit in the months following your bankruptcy. This is an important step to repairing your credit. You may not be able to obtain a substantial line of credit at first. Start small and make regular payments on it, keeping the overall balance relatively low.

An unsecured credit line is ideal, but those offers may be a year or two away after bankruptcy. A secured credit card is a good alternative, in which the amount of credit is equal to the amount of money you deposit at the bank.

If you obtain a secured credit line, be sure to speak with the card issuer to ensure that the payment history on your card will be reported to all three major credit bureaus. Your credit score will not improve if the payments are not reported to the bureaus.

Some secured cards will reward you for timely payments and automatically convert into an unsecured card after 12 to 18 months, but be sure to avoid cards with overly expensive upfront or annual fees. Especially watch out to ensure your charges do not exceed the approved credit line or additional fees will occur. Remember, these credit cards are there to make money from those consumers that make unwise choices or fail to monitor their account(s) closely. By keeping your purchases small and paying your entire balance at the end of each month, you can keep on building your credit and minimize any extra fees paid to these cards.

Work With An Attorney

Lastly, it can take from seven to 10 years for your credit reports to stop indicating that you once filed for bankruptcy, but that shouldn't stop you from filing if bankruptcy is truly in your best interests. Remember that ANY derogatory credit stays with you for AT LEAST that long. A charged-off credit card will continue to be a drag on your credit for several years and in many cases will only be removed from your credit report once the debt is paid in full or settled.

Speak with an attorney to help you decide. And if there are problems with your credit, like errors on your reports or other problems caused by debt, a lawyer can help provide financial solutions through a comprehensive audit.