Most people fear filing for bankruptcy because of the negative stigma attached to it, but they also fear that their credit will be ruined forever. Filing for Chapter 7 bankruptcy does have an impact on credit, but it does not affect a person forever. If you are considering filing but are afraid you will never get a loan again, you should understand the effects Chapter 7 has on credit, as well as the steps you can take to begin rebuilding your credit right away.
Effects on Credit Report
After you file for Chapter 7, the bankruptcy court will post the bankruptcy filing on your credit report. Bankruptcy is listed as a public record, which is considered a derogatory item on a credit report. This posting will remain on your report for 10 years, and there is nothing you can do to remove it from your credit report.
As soon as this posts to your credit file, it could cause a decrease in your credit score; however, your score might not decrease as much as you think. You might already have a low credit score if you are in bad financial shape. Any of the following things can decrease your score:
- Late payments to credit cards
- Maxed-out credit lines
- Repossession of a car
- Debts that went to collections
- Past-due child support, alimony, or tax debts
If you have any of these items on your credit report already, it's likely that your credit score is already fairly low. Adding a bankruptcy to it may decrease it a little more, but it would not really have a huge impact on it.
Ways to Rebuild Your Credit
The good news is that you can take steps to improve your credit score, and you can start immediately after filing for bankruptcy. If you take the right steps, you might qualify for credit cards, car loans, and even a mortgage within just a few years of filing. Here are the best steps to take:
- Dispute inaccuracies on your credit report – You should begin the process by obtaining a copy of your credit report. When you get this, look it over carefully and dispute items that are not correct. You must dispute each inaccurate item with each credit bureau that lists the item. While this process takes time, it is easy to do. Simply follow the directions each bureau offers.
- Get a secured credit card – Next, apply for a secured credit card. This is a credit card that requires a deposit. After you make the initial deposit, you get a credit card you can use for purchases. The nice part about this is that it helps rebuild your payment history by adding positive information each time you use the card and pay it off.
- Get a car loan – Adding a car loan will also add positive information to your credit report, and any positive information increases your score. If you cannot get a car loan yourself, see if you can find a cosigner to help you get one.
- Pay all your bills – Finally, make sure you pay every bill you have on time and avoid racking up new debt.
With these steps, your credit score will slowly increase. Within a few years, you might have a credit score lenders consider "good."
Discussing your unique situation with a bankruptcy lawyer is the best thing you can do, and you can do this for free. Contact the John A. Foscato Law Firm to schedule a free consultation visit with a lawyer. You will not be obligated to proceed with bankruptcy if you choose not to, yet you will have the opportunity to learn the benefits and effects of bankruptcy.