January 21st, 2009 by Ronnica Rothe
If you are considering bankruptcy, you should remember that it not only affects the amount of debt you have and your ability to repay it, but also your credit report and score. Once you have filed a bankruptcy, there are several steps you should take to minimize the affect of the bankruptcy on your credit score and help your score to rebound as quickly as possible.
Before getting a bankruptcy, seek the advice of a reputable debt counselor and/or a bankruptcy attorney to ensure that there are no other options available to you that are less damaging to your credit. If there are possible alternatives, they will be able to share with you your options so that when you do choose bankruptcy, you know that it is the best option for you. In most cases, you want to file only if you absolutely can’t pay your bills and are about to lose property. If you are facing repossession, it is possible that the repossession could be almost as bad for your credit as the bankruptcy, and make it harder to rebuild your credit.
If your original credit score prior to bankruptcy is in the 700s, you could see a 200 point drop immediately upon filing bankruptcy. Often, people who are filing bankruptcy have already seen their credit score drop because of late payments and increasing balances, so the bankruptcy itself won’t have as large of a negative impact.
After bankruptcy, you will want to check your credit report for several things. First, make sure that the only accounts that are part of your bankruptcy are listed as part of your bankruptcy. Secondly, you will want to make sure that the accounts that are a part of your bankruptcy are listed as discharged through bankruptcy, and listed has having $0 balance. If you find any errors, report it to the credit bureaus to get that fixed right away.
Bankruptcy itself will not affect your spouse’s credit if they do not file, but if they are a co-signer on some of those accounts, not paying the balances of the accounts will affect them. Their credit report will not report that you have filed bankruptcy, so those joint accounts may be reported as unpaid, but this can be corrected if your spouse did not sign for it. If they did sign, then they too are legally responsible for the debt. Co-signers are only protected under Chapter 13 bankruptcy, not Chapter 7, and only to the extent that the repayment plan is set-up to repay the debt. The co-signer will still be responsible for any additional debt balance, and may be required by the creditor to pay it.
Your bankruptcy will stay on your credit report for many years, but you will want to make sure the bankruptcy removed as soon as it can be. Chapter 7 bankruptcy can remain on your credit report for ten years, though the individual accounts under the bankruptcy should drop off after seven years. Chapter 13 bankruptcy and the accounts associated with it should only remain on your credit report for seven years. At the end of these periods, you will want to pull all 3 credit reports in order to make sure that your bankruptcies have fallen off your report.
The sooner you begin retaining or re-establishing credit in good standing after bankruptcy, the sooner your score will improve. A good place to start is with obtaining a secured credit card, one that is backed with funds that you have deposited with your credit union or bank. This is still reported to the credit bureaus, helping your damaged credit. Another important step to take is to make all your payments on time. This is essential to achieving and keeping good credit. Eventually, you should be able to be approved for a traditional credit card that you can use responsibly to continue to build credit. This work is necessary to rebuild your credit. Your bankruptcy will affect your credit less and less with time, so keep that in mind as well.
Bankruptcy doesn’t have to be a knockout blow to your credit. Once you’ve done your homework, you will be able to create a plan to lessen the impact of bankruptcy on your credit score both in the short-term and in the long-term.
This entry was posted on Wednesday, January 21st, 2009 at 2:26 pm and is filed under Bankruptcy, Credit Scores. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.