Bankruptcy and Your Credit

Bankruptcy is a legal procedure taken by individuals and businesses to help them get beyond excessive debt. For individuals, the most common types of personal bankruptcy are Chapter 7 (liquidation) and Chapter 13 (protected repayment) filings. If you choose to take the bankruptcy route, it’s best to be aware of the short- and long-term impacts to your credit. To start, a bankruptcy filing will remain on your credit report for 10 years.

Rebuilding Credit Post-Bankruptcy

Establishing credit after bankruptcy can be a challenge, but it’s definitely possible. Granted, bankruptcy is a major hit to a person’s credit report and score, but it’s nonetheless a starting point. It marks the end to your past and a start to your future. From the moment a bankruptcy filing is completed, you can begin rebuilding your credit. Make it so that others will judge you based on your present versus your past.

To improve your credit after bankruptcy, there are a number of approaches to take. All of them will take some time, but if you’re able to maintain good-standing, each will do a great deal in making a dent in your bankruptcy history. Again, a Chapter 7 or Chapter 13 filing will appear on your credit report for 10 years and so long as it does, it will have a negative effect on your credit score.

Further, a bankruptcy discharge, or a court order that releases the debtor from repaying the debts discharged (per The Balance), has no impact on how long a bankruptcy filing appears on a report. The bankruptcy filing will fall off your credit report after a decade, which should also mark a decade of responsible money management.

Banks vs. Credit Unions

One way to start building credit after bankruptcy is to start over, by opening a new savings and checking account. Both will help in establishing your efforts to better budget personal finances. A savings account will represent your ability to save for the future; a checking account, your ability to manage.

Those who file for bankruptcy may find that credit unions are more likely to help with new accounts than major banks. In the future, after you’ve re-established your credit, you can always transfer to a bank, but note that credit unions serve a positive purpose in communities. Being a member of one can make you part of that positivity as well.

Credit Cards After Bankruptcy

As for credit cards, it will be difficult to get approved for major ones unless they’re secured. Through your financial institution, you can usually acquire a secured credit card, which is essentially a card that has been secured by a deposit made to the account. In many ways, it’s similar to a prepaid credit card and it is critical to your credit that you obtain one. (Also, a personal milestone can be to qualify for an unsecured card again, and as NerdWallet explains, it’s a goal that’s totally possible after raising your score through secured credit card use.)

Indeed, one surefire way to re-establish credit after bankruptcy is to have a credit card (even a gasoline or department store card) and use it responsibly. With your card, make small purchases which can be paid off each month. Activity on your card, combined with regular on-time payments will gain you points on a credit report.

This said, as Experian notes, it’s important to make sure your credit card issuer reports activity to the major credit bureaus (i.e., Experian, TransUnion, and Equifax). You wouldn’t want all your efforts to go unnoticed; it is through the credit unions that you will begin to change your credit history and its standing.

Bankruptcy Can Be a Beginning

Paying all bills, including rent, utilities, and insurance, will also help demonstrate your budget and money-management skills. By staying out of debt, your budding credit after bankruptcy can’t help but grow. And before you know it, bankruptcy will be firmly put to the past.

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