Like most consumers, you may assume that filing bankruptcy will completely destroy your credit scores and that you will never be able to obtain credit, buy a home or purchase a vehicle again. The reality is quite the opposite. While a bankruptcy can remain on your credit report for up to 10 years as a public record which is a negative item in of itself, it is usually outweighed for most people after they obtain a bankruptcy discharge which erases most debts and negative reporting of the past.
A big part of your credit score is how much debt you have in relation to your available credit lines and what negative history you have. If all of your debt and negative items disappear, your credit score will likely go up. For instance if your scores are in the 400-600 range, it’s typical for scores to increase 100+ points after a bankruptcy filing. If you scores are in the 600 700 range, there may be a minimal impact on your scores. If your scores are 700+ at the time of filing a bankruptcy, then you may see a decrease in your scores, however as we will discuss here, you can improve your scores over time after filing for bankruptcy.
Should I check My Credit Report After My Bankruptcy Case Closes?
Yes! After your bankruptcy case closes, you may be free of debt, but that doesn’t mean there may not be some remnants remaining from your past. You should monitor your credit for several months to make sure creditors and credit bureaus have updated their records and reporting history on your credit reports.
Discharged debts that appear on your credit report can have a negative impact on your credit score. You should dispute negative items immediately with the credit bureaus and creditors to get your scores reporting correctly. The longer the negative item remains on your credit report, the longer it will take to rebuild so it is best to be proactive about the situation if you spot an error.
What If My Reaffirmed Debt is Not Reporting On My Credit Report?
In a chapter 7 bankruptcy case, debtors are allowed to reaffirm secured debts such as an automobile loan. If you choose to reaffirm the debt, your lender should continue to report your payments on your credit report and you will also be liable for the debt post bankruptcy filing. If you do not reaffirm a debt, you will not be liable for a debt post filing, but your secured debt will not be reported on your credit report. Whether you should sign a reaffirmation agreement depends on each individual situation.
If you did sign a reaffirmation agreement and the debt is not reporting correctly you will want to contract your creditor and the credit bureaus to get this resolved as the omission could have a significant impact on your credit score.
Will I Qualify for a Car or Home Loan After Filing Bankruptcy?
The short answer is yes. One of the most common statements clients make to me when I see them at court in about 30 days after filing their case is, why do I get so many offers for credit and cars after filing? The answer is because creditors know that you cannot file for chapter 7 bankruptcy again for 8 years and chapter 13 after 4 years from a chapter 7. Therefore, they are willing to take a risk on you with regards to offering credit. The rates you will receive will likely depend on your credit score, which is why it is important to monitor your score and make sure items are reporting correctly.
With regards to home loans, most bankruptcy and federal lenders will offer you a home loan after 2 years from your chapter 7 bankruptcy filing date and immediately after you exit a chapter 13 plan.
What if I Incurred More Debt After Filing Bankruptcy?
After filing for bankruptcy, you don’t want to make the same mistakes you made before, including borrowing more than you can afford to pay back. Sometimes accumulating debt is unavoidable such as with a medical problem or job loss, but if you can avoid incurring more debt it is advisable as an individual will only qualify to file bankruptcy again after 8 years. Therefore, it is best to live within your means and accumulate savings if at all possible.
With that said, not all debt bad debt. If for instance you get a car loan, credit or a home loan, and make payments on these every month, that can help build your credit. For best results you want to have several lines of credit, but not actually use all the credit available to you. This means use credit, get perks associated with that, and then pay down the debt every month. You don’t want to have balances more than 25% of your available credit lines. Secured credit cards are another way to build your credit if you don’t otherwise qualify for regular credit cards.
If you live in Washington State and are looking for assisting in rebuilding your credit score after filing for bankruptcy, give Symmes Law Group a call at 206-682-7975 to speak to a credit repair attorney and learn about your options.