One of the biggest concerns of many people when thinking about filing a bankruptcy or after the bankruptcy is over is “how do I rebuild my credit after a Chapter 7 bankruptcy case?”
Filing the bankruptcy case itself may actually help in the credit rebuilding process, because the bankruptcy should result in most or all of the debts on a credit report being reduced to a zero balance and, as is common knowledge, time can be a good credit rebuilder.
But there are some things you can do to actively help rebuild your credit. Following are some ideas and general principles that should be helpful in rebuilding credit after a bankruptcy filing:
Make sure the debts are reported as discharged in bankruptcy. After filing a bankruptcy case, creditors are required to state on a credit report that your debts are “discharged in bankruptcy” or “included in bankruptcy,” and the accounts should state a zero balance. But sometimes (maybe oftentimes) the credit reports are wrong, so you may have to dispute incorrect lines on your credit report. Doing so is not difficult. Here is a step-by-step process:
- Wait a month or two months after getting notice that your Chapter 7 discharge has been entered.
- Then, get a copy of your credit report from all three credit bureaus using www.annualcreditreport.com. If you have not requested a copy using this site within the last year, the copy should be free.
- Go through each credit report line by line. All discharged accounts should (1) have a zero balance and “included in bankruptcy,” “discharged in bankruptcy” or something similar. Highlight the accounts that show a balance and/or do not have the bankruptcy notation.
- For all highlighted accounts, send a dispute letter to the creditor and the credit reporting agency by certified mail, return receipt requested. Click here for a sample dispute letter. Make sure to include the basis for the dispute (more than zero balance or not listing bankruptcy designation) in each letter.
Live by a realistic budget. Create a budget showing all of your anticipated income and reasonable expenses. Stick to your budget. Try to make room in the budget for saving. Many people try to target 10% for savings. Living under a budget may be painful, but it is better than being under a new mountain of debt. Even if you get new credit (which you probably will), make sure to pay off revolving credit every month and don’t buy more of a car than you can afford.
Find a credit account that will help rebuild your credit; but don’t move too fast. Everyone seems to have an opinion about how to best do this. Some suggest obtaining a secured card (which is quite easy to do). Others suggest getting a store card. But what you don’t want to do is to apply for a bunch of credit all at once. That will show a bunch of “hard pulls” on your credit report, which are negative indicators. Many of our clients report getting credit card offers shortly after the Chapter 7 discharge being entered. In fact, one study by Prof. Katherine Porter shows that 96% of individuals were offered credit within a year after bankruptcy. Because there are so many opinions on the best way to obtain new credit after bankruptcy, here are just a few of the articles out there: