How to pick up the Credit Pieces after Bankruptcy
It can be a nightmare that closes its grip around you before you even know what’s happening. For thousands of people every year, bankruptcy turns out to be the only option available to get out of debt. No one intentionally tries to ruin their credit, but it does happen and there is a way to rebuild your credit after you declare.
Before we look at ways to rebuild your credit after bankruptcy, let’s look at the two types of bankruptcy out there. Chapter 7 is a form of bankruptcy that allows you to keep most of your possessions, like your car, and you still pay off some of your debt while the rest is discharged. With Chapter 13, all of your unsecured debt is discharged, while things like student loans and child support remain your responsibility.
Now that you have declared bankruptcy, you need to rebuild your credit. Depending on the kind of bankruptcy you chose, you may still have credit lines outstanding that you need to pay on. It is extremely important that if you still have a car payment, or a student loan payment, that you never, ever miss payments or are late on payments. The fastest way that you can rebuild your credit is to make responsible, on-time payments on any remaining credit lines.
If you chose chapter 13 and you have no outstanding debt left, then it is going to be a little harder for you to rebuild your credit. For the next two years or so, you will not receive any kind of credit card offer, and it would be almost impossible for you to get approved for a store credit card or any other line of credit. However, you will start to receive credit card offers in the mail at some point. These will be either secured credit cards that require you to put a down payment on, or sub-prime unsecured cards with much higher interest rates than what you were use to paying before. While it can seem like you are dealing with two evils, it is a good idea to choose the lesser of the two. Start using your new card, but be very careful with it. Many sub prime cards are laden with fees and hidden costs, but it is a bit of a Catch-22. You need to be making on-time payments to rebuild your credit, but you want to use your card as little as possible to avoid excess fees.
As time goes on, and you’ve been more responsible, you’ll have a better change of getting approved for a new car loan or even a mortgage if you so desire. You will eventually start getting offers for unsecured cards and regular, non-sub prime cards, as well. While your credit may not be back to pre-bankruptcy levels, it will be much healthier than it has been in a long time. The key with rebuilding your credit is responsibility and balance. You need to use cards to help rebuild your credit, you just need to control yourself when you do.
Bankruptcy is something that no one should ever have to face alone. It can be a trying time where it seems like your financial world is ending. But with the right amount of perseverance and hard work, you can come out the other side a stronger and better financial being.