How to Financially Recover from Bankruptcy
People are often reluctant to talk about bankruptcy. It is often considered a personal (or professional) failure, even if it’s caused by external sources. In order to alleviate the stigma and teach you more about bankruptcy and what to do if you have to go through it. Professionals from the Law Offices of Mark L. Miller told us in short how bankruptcy works and how you can recover from it.
If you filed for Chapter 7 bankruptcy, wait for the discharge of your case before you receive a letter from the court advising that the discharge does not have to take place more than six months after your application. If you file for Chapter 13 bankruptcy and your case is not resolved before the end of your three- to five-year repayment period, you will have to wait 90 to 120 days after filing for bankruptcy to have your credit reported.
Chapter 13 Bankruptcy Details
Upon completion of Chapter 13 bankruptcy, all accounts in the program will disappear from your credit reports seven years from the date of filing. Check your credit report to make sure all the accounts that were part of your bankruptcy are listed (more on this below). Accounts that are released from bankruptcy are reported as exonerated, including those with zero balances.
Your credit will appear in the public bankruptcy documents for 10 years, even if the discharged account has a negative note. Bankruptcy will remain in your credit history, and your score will be below average.
For example, you may need to deposit $1,000 in cash at your credit union. For people filing for bankruptcy, don’t expect your credit limit to be higher than the amount of your deposit. You can find secured cards that do not charge annual fees.
How Credit Unions Can Help
Consider working with a credit union after bankruptcy, as many offer secured credit card products alongside credit builders and loans. For many people, bankruptcy and secured credit cards are the best options. Bankruptcy can be helpful if you are overwhelmed with financial obligations, but it can also affect your credit.
If you reach the point where you file for bankruptcy, the chances are you have late payments reflected in your credit score. Bankruptcy will remain on your report for 10 years from the date you filed your application. After filing for bankruptcy, you can work to build up your credit, but that doesn’t happen immediately.
How Long Will It Take to Recover
The time it takes to clear your bankruptcy from your credit report depends on the type of bankruptcy you have filed and the amount of debt you are owing. Depending on the type of filing, bankruptcy can be stored on your credit reports for up to ten years. But you don’t have to wait that long for the sting of bankruptcy to be removed.
Researchers have found that people who file for bankruptcy are more likely to have a new line of credit within 18 months than people who are overdue or do not apply at all. Research by LendingTrees shows that within five years of going bust, 75% of applicants have restored their credit rating to a level where they can qualify for a loan.
It Takes Time, But Your Credit Score Will Recover
It is true that filing for a Chapter 7 or Chapter 13 bankruptcy can have a negative effect on your credit score, but you can build up your credit over time. After bankruptcy, you are in a better position to get credit if you reduce your debt-to-GDP ratio. The relief from bankruptcy outweighs the need to keep your creditworthiness, and your efforts to pay your bills on time can lead to significant anxiety and stress for you and your family.
How to Bolster the Credit Score
An important step is to start rebuilding your credit after bankruptcy. Use the ten years of Chapter 7 bankruptcy to stabilize your accounts financially and rebuild your credit history. Once you are in a position where bankruptcy is a realistic option, your credit rating will be less affected and you will be in a financial position where you will not fight for your minimum payments anymore.
If you manage to get most of your cases through the process within four months, you should be able to start rebuilding your credit after receiving your insolvency relief. Wait at least three months after your dismissal to give creditors a chance to update their reporting. You can also start to receive new credit offers after bankruptcy.