What is life like after a bankruptcy? This is a common question and worry for anyone contemplating a bankruptcy filing. However, 1.2 million people filed for Chapter 7 bankruptcy protection in 2012 and continued with their lives.
While a bankruptcy remains on your record for seven to ten years, it does not mean that you will not be able to access credit or a new mortgage during that time. The following tips are ways to start rebuilding your credit.
Pull and carefully review your credit reports
Before filing for bankruptcy, your credit may have already taken a hit. The bankruptcy filing will reduce it further. You may not want to look at your credit reports because of this. Yet it is very important to request copies from each of the three major credit bureaus.
Closely review whether debts included in your bankruptcy are listed correctly on your credit report. Watch for any errors. For example, an account that is not yours or a line of credit you closed that still appears to be open. File a dispute, if you find a mistake.
Did a serious hardship, such as a battle with cancer, force you to file for bankruptcy? If so, write to the reporting agencies and explain the circumstances. You should also include steps you have taken to avoid future credit issues.
Take out a line of credit
Credit cards may have gotten you into trouble in the past, so this may seem counterintuitive. However, taking out a line of credit will help rebuild your credit score. Many banks offer secured credit cards. These offer a line of credit equal to your deposit with the bank.
Be aware that these lines of credit often come with yearly fees. However, a perk available at some banks is that they will pay interest on the amount you deposit. Try to limit the amount of charges to no more than 30 percent of your limit and pay off the balance each month.
Pay bills early or on time
Payment history makes up approximately a third of your credit score. Paying secured credit card, utility and mortgage bills by their due date can have a positive effect. Obtaining a loan with a co-signor and making timely payments is another way to earn good credit points.
Restoring your credit will take some effort, but it is possible. For instance, you may qualify for a home loan sooner than you think. Mortgages backed by the Federal Housing Administration are often available a year after the completion of Chapter 13 payment plan or two years after a Chapter 7.
When debts along with interest and fees increase what you owe to the point that you cannot see a way out, contact an experienced bankruptcy attorney. Options exist that will allow you a fresh start. Life after bankruptcy is also manageable by taking proactive steps to reestablish good credit.