Living in debt default will undoubtedly have an impact on your credit rating. This is an inevitable fact, although the amount by which your score will suffer can vary greatly. Once you have come through the bankruptcy process, your financial picture will be much improved, with many of your debts discharged and any other debts up to date with their arrearage. Given this fresh start, the first place to begin rebuilding is your credit.

A Timeline for Rebuilding Credit

First, experts recommend starting out small. Many experts believe that your first step after successfully filing for bankruptcy and receiving your discharge should be to obtain a secured credit card. This is a card linked to a security deposit you make in advance, and through which you make small purchases, paying the balance in full each month. Slowly, these timely payments will increase your score by showing regular payments.

Filing for bankruptcy under Chapter 7 has some potential benefits for the rebuilding process that you may not have considered. For example, a debtor who has recently received a discharge under Chapter 7 cannot receive another discharge for eight years. In some cases this can make a recent filer more attractive to a lender, since their loan is essentially guaranteed for eight years. In addition, a Chapter 7 discharge greatly decreases your debt-to-credit ratio, which is a number lenders look at to determine creditworthiness.

Chapter 13 filers also have a couple potential advantages. First and foremost, a successful Chapter 13 requires the regular repayment of loans for the entire course of the three to five year period set out when filing for bankruptcy. Therefore, a successful completion of Chapter 13 shows that you have been able to live in a fiscally responsible manner for that amount of time. In addition, your debt-to-credit ratio will also be lowered significantly, though not as much as in Chapter 7.

It is important to be patient when rebuilding credit. It cannot happen overnight. There will be temptation to launch right into a full-scale rebuilding process, taking out new loans and acquiring new debt, but these temptations are best avoided until your score has a chance to regenerate. Especially important is to avoid falling prey to predatory lending schemes targeted towards those whose credit scores have suffered as a result of bankruptcy.

 

Be sure to keep a close eye on your credit report as you are rebuilding. All debts that have been discharged should be listed as such, and all that have been repaid should be listed as such. Errors do happen, and it is up to you to spot them and get them corrected.