Bankruptcy And Credit

Restoring Your Credit After Bankruptcy

Bankruptcy has a long-term impact on one's credit rating, and on his or her ability to acquire credit in the future. But, the impact is not completely negative. In some instances, filing bankruptcy may essentially improve a bad credit rating. Moreover, there are several steps a person can take to improve his or her credit after bankruptcy.

Improved Debt-to-Income Ratio may result after a Bankruptcy

Nearly all of the debtors who consider filing bankruptcy already have bad credit histories. Their credit scores have suffered because of their late payments, extended credit, repossessions, charge-offs, foreclosures or judgments. However, subsequent to their bankruptcy, the discharged debts will no longer count against their income. Therefore, their credit may improve after the discharge. Additionally, while a bankruptcy filing will remain on an individual's credit report for up to ten years, late payments stay on for as many as seven years, so the effects are comparable. Bankruptcy, however, gives individuals a chance to improve their credit sooner because they will have an enhanced debt-to-income ratio after their discharge.

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Being wise with Credit Card Use

In some instances, consumers may be able to keep one of their credit cards after bankruptcy. This may occur where they retain a card that they already have but that has no debt on it. Additionally, they could reaffirm a debt on a credit card, which means that the individual signs a contract with the credit card company after filing bankruptcy, which says the debt will be paid if the individual is permitted to keep the card. There are some companies that are agreeable to this arrangement because they will be paid for the debt. Otherwise, without reaffirmation, the entire debt could be discharged in the bankruptcy proceeding.

Another option for rebuilding credit after a bankruptcy is using a secured credit card. A secured credit card is a credit card that is issued by a bank, and is supported by money that is kept in reserve with the bank. Specifically, a bank account is used as security for the card so that if the credit card is not paid on time, the bank may use the money in the account to cover the payment. The card's limit can be raised by increasing the balance in the bank account. The issuers of secured credit cards submit reports regarding their customers to the credit bureaus, so any positive payment history will be available to creditors in the future. Secured Credit Cards carry interest rates that are typically higher than the rates for non-secured credit cards, but their ability to allow new and reported financial stability on behalf of the consumers who use them may be worth their extra cost.

Co-signed Loans

An additional way to restore one's credit after a bankruptcy is to acquire a loan with a co-signor with positive credit to convince the bank or other lender that the loan is a sure thing. When are made on the cosigned loan, the positive credit history will positively affect both borrowers.

"Credit-Repair" Services

One scheme to avoid after bankruptcy is requesting help from a "credit-repair service." Many individuals pay substantial sums to so-called "credit clinics" or "credit repair services" to "alleviate" or "fix" their negative credit reports when, in reality, only time can cure bad credit. Legally, these clinics cannot do anything that an individual cannot do on his or her own. What's more, some of these companies encourage consumers to commit fraud by advising them to create a second identity. The Federal Trade Commission has investigated these often-fraudulent services and advises consumers to beware of those making promises that are too good to be true.

To improve their financial situation and create habits that will lead to financial responsibility, debtors must learn from their bankruptcy. An experienced bankruptcy attorney at our firm can get you one step closer to financial stability and responsibility by working with you to see how your credit be improved with or without a bankruptcy, so that you can have a positive financial future.

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