Improving Your Credit Score After Declaring Bankruptcy
There are several strategies those who declare bankruptcy should use to rebuild their credit after the discharge process. After filing bankruptcy in Connecticut, this action remains on the credit report of filers, and it can stay there for up to a decade. Although the impact of filing bankruptcy will lessen over time, filers may be anxious to boost their credit score after completing the filing process so they can move on financially.
While establishing credit following bankruptcy does take time, there are several strategies filers can use to speed up the process.
How Will Bankruptcy Impact My Credit?
This is a question many people ask when considering bankruptcy: How will bankruptcy impact my credit? It is understandable to be concerned about your credit after filing for bankruptcy. If you have been in debt for any length of time, it is important to repair and rebuild your credit score so that you can afford housing and secure credit for other important life purchases. Make sure you work with an experienced lawyer who can help you find debt relief and repair your credit.
At The Law Offices of Ronald I. Chorches in Hartford, Connecticut, we take a personalized, highly consultative approach to finding our clients the debt relief solutions they need. Rather than simply sending our clients through the Chapter 7 or Chapter 13 bankruptcy process, we take the time to listen and understand our clients’ situations.
Repairing Your Credit Score
One common bankruptcy myth is that bankruptcy will hurt your credit score. However, the truth is, if you have been buried in debt for a significant length of time, bankruptcy is more likely to help your credit score go up.
In addition to stopping the compiling increase of debts on your report, bankruptcy frees you up financially to begin the steps necessary to become more attractive to potential lenders. After the initial dip in your credit score that your bankruptcy could cause, you will have the opportunity to slowly begin borrowing again. When you do this without falling behind, your credit score will be in the position to improve.
Carefully examine credit reports
Once the bankruptcy process is complete, you should carefully monitor your credit score and credit reports. On a regular basis, consumers should obtain a copy of their credit reports from Equifax, Experian and/or TransUnion, which are the three major credit reporting institutions. After declaring bankruptcy, you should watch out for errors relating to where you work, your personal contact information and your residency information.
Open a secured credit card
After bankruptcy, filers should open up a secured credit card as soon as possible. There is no special process required to obtain a secured credit card, and filers can simply go to their bank to obtain one of these cards. After putting down a deposit on a secured credit card, the bank will provide a credit line worth anywhere from 50 to 100 percent of the deposit amount.
Those who obtain a secured credit card should remember that many of these cards come with an annual fee. Additionally, the rates on unsecured credit cards are higher than those on secured ones, so those with one of these cards can expect to pay rates as high as 23 percent.
Purchasing a car or a home
After bankruptcy, the timeframe required to purchase a home or a car varies by lender and the type of bankruptcy filed. For example, those who file Chapter 7 bankruptcy may be able to purchase a new car shortly after filing.
Comparatively, those who file Chapter 13 bankruptcy may be required to get the permission of the trustee to purchase a new car if their repayment plan is still in effect.
Those who have yet to fully repair their credit following bankruptcy should expect to pay interest rates that are anywhere from two to three points above standard rates.
Learn the difference between good and bad debt
People often consider two main types of debt, known as good and bad debt. One general rule of thumb is that debt is good if it’s the type that nets you a tax deduction or provides a long term benefit.
For example, running up $10,000 of debt on a credit card is bad debt. It’s something you simply owe with no benefits. Buying a home for $500,000 is good debt. It’s far, far more debt overall, but you can take a deduction on your taxes. It also eliminates the need for rent payments, and you’re slowly paying off a home that still has an inherent value. In some cases, the home will sell for more than you paid for it.
Another example of good debt is a business loan. They often say that you have to spend money to make money. You have to take that loan out to start your company, but you hope it becomes an asset that keeps earning you money, even after you pay off the debt. Again, you may also get a deduction.
Be careful however, as experts warn that even good debt can turn bad. The deduction alone isn’t reason enough to take on the debt. If you can’t afford that $500,000 home, you’ll wind up in foreclosure. Yes, you get a bigger deduction than you would with a $200,000 home, but trouble can still mount. Additionally, taking on too many good debts, which may all have been fine on their own, can bury you in overall debt.
Did you perhaps take out a lot of debt that you thought was wise, but now you’re in over your head? It happens, and it’s not the end of the world. Just be sure you know about all of the debt relief options you have, and contact our office with any of your questions.
Waking Up To A New Day ∙ Building Your Future
It is important to see bankruptcy with a focus on the future. In addition to the immediate debt relief that a Chapter 7 or Chapter 13 bankruptcy can provide, it is also an important opportunity to begin your future. Once you are free from burdensome debt, you can use that opportunity to begin rebuilding your credit and saving assets for your future.
For businesses involved with Chapter 11 or other forms of business bankruptcy, this is a great opportunity to begin setting up your business to succeed in the future through business reorganization, long-term asset planning and other means.
At The Law Offices of Ronald I. Chorches, attorney Chorches and our entire team stand ready to help you use this opportunity to plan for life after bankruptcy. As your law firm, we will help you set yourself up to build wealth, not just to put out immediate fires.
Get In Touch With Us
Attorney Ronald I. Chorches will help you find debt relief solutions that will work for you, walk you through the process of bankruptcy or another debt relief option and help you establish a sound approach to building your life after bankruptcy. Those who have yet to file bankruptcy in Hartford or New Haven may be concerned about how they will rebuild their credit and start fresh following bankruptcy. If you need more information, call us to discuss your options. We are here to help. Call 860-563-3955 to set up your free consultation.