No matter how many clients I have worked with over the past 25 years, the greatest concern of the vast majority of them is “How long will it take me to re-establish credit after I file Chapter 7 Bankruptcy?”
While there is no hard and fast rules of thumb, it is much easier than you think. Here are four tips to consider:
1. Keep any manageable debts you can after you file. In most cases, student loans can’t be discharged by bankruptcy. Other times, clients may choose to continue making payments on a car loan. Assuming that you can afford the monthly payments, it makes sense to maintain your student loan and/or auto payments after your bankruptcy, because repaying them will help you rebuild your score faster.
2. Get a secured credit card. For people with damaged credit, the easiest way to begin to rebuild credit is with a secured credit card. The consumer pays a cash deposit up-front, and this deposit is used as collateral. You can use the card to pay for things you would buy anyway, like groceries or gas. As long as you pay the balance in full every month, you will not incur interest charges. Most importantly, the monthly payments are reported to the big three national credit bureaus, which will help to rebuild credit. A word of caution however – do your research on secured lines of credit. Many companies offer secured lines of credit with exorbitant up-front fees. These accounts are beneficial so long as the costs do not outweigh the benefits.
3. Retailers Love Bankrupts. After secured cards, a retail card is the second easiest type of credit for a person with damaged credit to get. Remember, you can only obtain a discharge in Chapter 7 Bankruptcy once every eight years. Retailers are not stupid. They want you to buy, even on credit. Retailers have been known to offer small lines of credit ($300-500) as soon as six months after the issuance of a discharge because they know if you accept it, you cannot “bail out” for another eight years. Please note that the same rule applies as with secured cards: buy only what you would anyway if you were paying cash, and pay the balance every month to avoid interest charges.
4) Be patient – Life does return to normal. Over time, by paying your secured and retail cards off every month and rebuilding your credit, you will find that you can get other loans including regular credit cards, car loans, or even a mortgage. By no means will you be locked out of credit for the next ten years.