The decision to file for bankruptcy is often the culmination of stress and uncertainty. The prospect of rebuilding credit is a concern that many filers don't fully process until they need to take out a loan.
Rebuilding credit after bankruptcy requires patience, diligence, and at times, sacrifice. It's not a quick and easy journey, though it's attainable when individuals integrate healthy credit habits.
Before discussing the tactics required to rebuild credit and how to avoid the common pitfalls, we're going to delve into how bankruptcy affects your credit score and why a bankruptcy lawyer is integral to a successful filing with the court.
Key Takeaways
Filing for bankruptcy can have a significant impact on your credit score
Rebuilding credit requires time, patience, and effort
Bankruptcy doesn't mean that you'll struggle with low credit forever
There are bankruptcy lawyers who are available to help
What Happens To Your Credit Score After Bankruptcy?
It's no secret that filing for bankruptcy can have a hefty impact on your credit score. However, this doesn't spell out the end of your financial future. You may be able to keep your car, home, and any retirement savings depending on what type of bankruptcy you file for.
There's no escaping a poor credit score after bankruptcy. This can be facilitated by creating responsible financial habits, such as paying off monthly debt and keeping your credit card balance low.
How Many Points Does Your Credit Score Drop After Bankruptcy?
There is no universal answer for exactly how many points your credit score will drop after a bankruptcy filing. However, the average score that people see on their credit report after filing is somewhere between the 500-550 range.
For many people, their credit drops 200 points. This credit hit significantly impacts those who had high credit scores, to begin with. Those with a lower score before filing for bankruptcy may see a 100-150 point dip.
Can You Rebuild Your Credit After Chapter 7 Bankruptcy?
Chapter 7 bankruptcy is commonly referred to as the "fresh start" type of bankruptcy. It provides help to individuals who find themselves overwhelmed by crushing debt. Whether the debt is from a credit card, a medical emergency, or another life circumstance such as job loss, divorce, or illness — Chapter 7 can provide relief.
How Fast Can You Raise Your Credit After Chapter 7?
Rebuilding credit is not a fast process, especially after filing for Chapter 7 bankruptcy. Raising your credit to an excellent score after bankruptcy can take 3-5 years, sometimes longer. Ideally, you should begin to see improvement within the first 12 months with responsible credit habits.
Can You Remove a Bankruptcy From Your Credit Report?
It will take ten years from the filing date for a Chapter 7 bankruptcy to fall off your credit report. At this point, you can expect a boost of 50-150 points to your score.
If you spot inaccurate information on your credit report, you should dispute it immediately. However, if the information is correct — then there's no way to prematurely remove a bankruptcy.
Is It Hard to Get a Loan After Filing Chapter 7?
Many lenders will see the bankruptcy on your credit report and think twice before providing you with a loan. This doesn't mean that it's impossible to secure a loan, but it may take a bit more legwork.
Those who have bankruptcy on their report will oftentimes need the help of a cosigner. Unless you need a loan right away, such as for a vehicle or a home, it's recommended to wait it out for a year or two before adding additional debt.
Can You Get Approved For a Credit Card After Chapter 7?
Once you've filed Chapter 7, a pressing concern may be whether you'll be able to acquire a credit card. After all, a plastic card to charge purchases on makes life a bit easier.
There are secured credit cards that exist for those who are dealing with bankruptcy. You may be able to qualify for an unsecured card, though it will likely have a low credit limit.
Credit Mistakes to Avoid When Rebuilding After Bankruptcy
When you're working to raise your score, there are crucial mistakes you should avoid making. Once you're in the poor credit range, it's imperative that you increase your score before you seek any type of auto or home loan.
Healthy credit-building habits can lay the foundation of a secure financial future. The results won't occur overnight, but if you continue working towards increasing your credit score, you'll see positive reverberations within a year.
After filing for bankruptcy, clean credit-building habits include:
paying your bills on time each month
monitoring your credit report to ensure accuracy
keeping a low credit card balance
building an emergency savings fund
establishing a budget to circumvent avoidable debt
What Should You Not Do After Filing Chapter 7?
There are a few things that are not recommended once you file Chapter 7, such as reverting to poor spending and credit habits.
Immediately after filing for bankruptcy, you should avoid taking on any unnecessary debt. Student loans aren't discharged during bankruptcy, so don't stop paying them down. You'll still be on the hook for any alimony and child-support payments as well.
While bankruptcy can represent a fresh start, it's also easy to fall back into the same trap. Remember, two bankruptcies are much more difficult to overcome than a single one.
Free Bankruptcy Consultation in Phoenix
When filing for bankruptcy, it can be helpful to have an experienced lawyer on your side. The average consumer isn't familiar with the ins and outs of bankruptcy court. A lawyer can even advise you on how bankruptcy will affect your financial situation and provide an estimate of how far your credit score may drop.
AZBK lawyers are located in Phoenix and strive to provide individualized, helpful advice to those considering bankruptcy as an option. Filing with the court is not an easy decision to reach, though it may be the only option left on the table to escape crushing debt.
The longer you struggle to get out from under your debt, the worse your credit will be. We're here to help clients across the state of Arizona find a solution to their debt and determine the best way forward to building a stronger financial foundation for their future.
How to Contact Our Bankruptcy Lawyers
AZBK has bankruptcy lawyers who are waiting to hear from you. Our experienced law professionals can guide you through the stressful process of filing for bankruptcy, starting with a complimentary risk-free consultation.
Those looking for help preparing their petition should reach out via the form on the website or call (602) 648-3274. We have a bankruptcy checklist that can help determine what type of bankruptcy is right for you and the steps you need to take next.