We’re Bankruptcy Lawyers in the Twin Cities
The act of filing bankruptcy will have a major effect on your credit once you file. Surprisingly enough, filing bankruptcy tends to improve your score in the 2-month to 1-year range if you were behind on debts before filing. If you weren’t behind on anything before filing, then your score goes down more because it will be starting from a higher point. Medical bills and taxes mostly don’t show up on credit reports in Minnesota, so people who are filing on this type of debt but who are current on everything else will see a bigger credit drop. In most bankruptcies, however, there are bank loans, credit cards, payday loans, and other things that are showing as late or in collections on the credit report. Because the bankruptcy makes all of these show as $0, discharged in bankruptcy on the credit report, the negative reporting stops, and your financial stability is better and your score starts to improve.
A chapter 7 bankruptcy will be on your credit report for 10 years. You can get an FHA mortgage only 2 years after the discharge, and car loans within days. You will also start to get offers for credit cards, but the limit on them will be only a few thousand at the start.
For Chapter 13 bankruptcy, the impact on your credit score is less harsh as your debt is restructured in a payment plan where it actually gets paid back. The chapter 13 will be on your credit report for 7 years from the filing date. The filing date is the beginning of the Chapter 13, and they often stay open for 5 years, so it is really only on the report for a few years after the discharge and closing.
Regardless, if you have filed bankruptcy in the past, it may not necessarily be difficult to get new lines of credit extended, but you will definitely notice certain penalties. Credit cards may have higher interest rates and you may not be offered as large of a line of credit as you were in the past. Does this mean you need to wait ten years for that black mark on your credit report to go away? No, but you will need to rebuild your credit slowly and manage your finances.
Heed Your Credit Counseling
During the bankruptcy filing process, you will be required to take a credit counseling course to see if bankruptcy is unavoidable. Within this course, there will be information about your household budget and consumer debt that can help you live your life a little more responsibly with your fresh start.
While this isn’t necessarily a way to repair your credit after bankruptcy on its own, the lessons from the course are something to keep in mind so your debt doesn’t go spiraling again.
Manage Your Credit Cards
It is not necessarily difficult to get a credit card after filing for bankruptcy. However, you may only be offered cards with high interest rates and very stiff penalty fees. The best way to use the credit cards after filing is to buy something costing $40 or so and then pay it off completely at the end of the month. This way, you won’t pay any interest or fees on it, and you will get new positive remarks on your credit report.
When using a credit card to build credit, make sure to not take out more credit than you need, make payments on time, and keep the balance low. Setting up automatic payments every month and enabling balance alerts on the card can help you keep your credit limit on your mind so you don’t go overboard.
Use Secured Loans
You likely got into the debt that caused bankruptcy because you were necessarily overflowing with excess cash. However, after bankruptcy, one of the best ways to build your credit back up again is to use secured loans. When a loan is secure, it means it is backed by collateral. This means auto and home loans are secured because they have the physical collateral of your house or car.
While secured loans are a good way to build credit and many creditors more comfortable knowing they can collect something for payment if you default, you still may have problems getting approved for large loans after bankruptcy. Unfortunately, your only real option is to start small to rebuild that trust back up again.
Need Help? Contact Walker & Walker Today
Are you getting ready to file for bankruptcy and are unsure about what the future will bring? Bankruptcy is a notoriously difficult time, but with a knowledgeable bankruptcy lawyer by your side, they can help guide you towards every step you need to take. If you see bankruptcy in your future and need solid representation, contact us today to see what Walker & Walker can do to help.
