Fixing Your Credit Rating After Bankruptcy

You can fix your credit rating after a Chapter 7 bankruptcy pretty easily. There are methods to rehabilitate your credit rating with the credit reporting bureaus after bankruptcy. Many of our clients think that after bankruptcy they will not be able to have credit cards or obtain personal loans. They are sometimes shocked at the number of credit card applications that arrive in the mail while they are in the middle the bankruptcy. It’s confounding for them to realize that lenders actually view them as a better credit risk after bankruptcy than before.

Although this is counter-intuitive, it makes sense. After all, your cash flow situation improves after Chapter 7 bankruptcy because all those old debts are discharged and you don’t have to pay them back. This means you have a lot more cash flow to pay new debts. So, in your mail box you will find new credit card applications.

Some of our clients take the position that never again will they use credit cards. That’s what got them into trouble in the first place. That might be good advice. But a counter argument can be made. You rebuild your credit rating—not by never borrowing again—but by borrowing and paying on time.

So the trick to reestablishing your credit rating after bankruptcy is to use credit cards responsibly, preferably by paying the full balance off each month. Use the credit card only as a cash substitute, meaning that, if you don’t have the cash to buy an item, then you don’t buy it, period, card or no card. That way, you never get behind again, and the credit reporting bureaus see you as a good credit risk. Your credit rating will improve.

Check your credit score three months after bankruptcy and every six months thereafter. Obtain help if there are mistakes. You can write to the credit reporting bureaus to have them remove mistaken items.

If you filed Chapter 13 bankruptcy, it is imperative that you stay current with the plan payments. If you default, the court may dismiss your plan or you may have to convert to a Chapter 7 liquidation bankruptcy. Manage your monthly expenses very carefully.