Post-Bankruptcy Credit Counseling and Credit Repair

Your Credit and Finances After Bankruptcy

When you've finished up your bankruptcy hearing, and you've done the required post-bankruptcy credit counseling session (this can be done online in a matter of minutes), you should receive a notice of discharge. If you've done a chapter 13 bankruptcy, you will begin making your monthly payments to the bankruptcy trustee. In either case, all of your monthly credit card and other such bills are gone, so what happens next?

Your Credit

At this point, your credit report is updated to include the bankruptcy, so it will be difficult to get new credit cards at reasonable interest rates, and getting a loan from your bank is going to be next to impossible for some time. However, there are things you should begin doing now to get your credit back as quickly as possible.

What You Get Out of Credit Counseling

Depending on the company providing the credit counseling, it may or may not be a useful, informative experience. Typically they will just go over the basics about maintaining some certain amount of credit and watching your spending behavior. This is all good advice, but here's a closer look in terms of what exactly your bankruptcy is doing to your credit report, and how you can overcome the impact and get back a good credit rating.

Your Bankruptcy on Your Credit Report

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You must think of your credit report not as a static "right now" snapshot, but rather a running tally of your credit usage and payment history. When you begin missing payments, using up much or all of your available credit or begin paying only minimum payments each month, your credit score will decline over time.

When you get your debts discharged in a bankruptcy case, whether it's a chapter 7 or a chapter 13, some or all of your dischargeable debt line items on your credit report that would otherwise have some outstanding debt amount and credit remaining are replaced with "discharged in bankruptcy." This in and of itself does have a negative impact on your overall score, and this is what you must overcome to rebuild your credit.

Overcoming Bankruptcy on Your Credit Score

In order to get your credit back up after your bankruptcy case, you want to begin getting other information on your credit report to "push back" those bankruptcy line items and establish a good recent history of credit usage, timely monthly payments and very small amounts of revolving credit. Here are the most effective things you can do to ensure you get a good credit score in as short a period of time as possible:

1. Use Any Credit Cards You Still Have Moderately

In some bankruptcy cases, the petitioner has one or two credit cards that didn't have a balance during the bankruptcy. This is a great place to be, because most banks will close the credit account if the debt has been discharged, and getting new ones immediately after bankruptcy is difficult.

If you do have a credit card, use it sparingly and pay it off each month for the first few months. After that, you may want to leave a small amount of debt, only maybe $100 or so, so that you maintain just a little revolving credit. Believe it or not, this is actually helpful to your credit score, because it means the bank is making some money in interest. Make sure you don't wind up carrying a lot of debt again, and you should only have as much as you could easily payoff at any time.

2. Get a "Secured" Credit Card

If you don't have any credit cards from before your bankruptcy case, ask your bank for a secured credit card. These are similar to debit cards, except you put down some amount of money "securing" your credit, and then use it just like a credit card up to your secured amount. Once you have this, use it just like you would in the tip above, making sure to make payments on time or early.

3. Stay on Top of Your Bills

There is no worse mistake to make than missing payments and dealing with late fees on any of your monthly bills. Not only does it cost you in late fees, it completely negates your efforts to build up your credit.

Make a schedule, and make sure you set up reminders two weeks in advance of every bill so that you can align your income payments with your bills, and make sure they are covered before you spend money on any unnecessary things. You should pay all of your bills before they are due. If you have a clean recent history of payment, you are far less of a risk in the eyes of creditors.

4. Your Clean Slate and Debt to Income

One of the things people don't consider regarding their ability to obtain credit after bankruptcy is that from a certain financial perspective, you are in a much better position after bankruptcy to responsibly use credit. You don't have much if any outstanding debt, so it should be much easier to stay on top of any newly acquired debt. If you can maintain a healthy monthly payment history, and have only a small amount of debt outstanding once you are able to obtain some credit, it will not be long before you can buy a new car, get low interest credit cards and even get a home loan.

A Timeline of Post Bankruptcy Credit Repair

You should plan to struggle for 18 months to two years before you are able to easily get credit at good interest rates. In general, if you are able to take the requisite steps to rebuild credit and you are diligent in your attempt, your credit repair should go something as follows:

1 to 3 Months after Your Bankruptcy

• Stay on top of your bills.
• Get a secured credit card and begin using it in moderation.

3 to 9 Months after Your Bankruptcy

• Stay on top of your bills.
• You may be able to get a credit card with a "not so great" interest rate. Use it sparingly. Perhaps you only use it for gas, and pay it off twice a month to minimize the impact of the interest.

9 to 12 Months after Bankruptcy

• Stay on top of your bills.
• Look around for another credit card and see if you can get a low interest, no rewards credit card with a small amount of credit like $500 to $1,000.
• If you get one, use it instead of the high interest one. You can keep the high interest credit card account open, but keep the card tucked away in a drawer and watch out for any non-usage payments.
• Use the new credit card at least once or twice a month, and pay it off completely and early each month.

12 to 24 Months after Bankruptcy

• Stay on top of your bills.
• Continue looking for good credit cards. At this point you will be getting a bunch in the mail again. Take a look and see if you can get an even lower interest rate, and avoid "rewards" cards unless it's something you will actually use. Rewards cards tend to make up for the rewards with higher interest rates and hidden fees.
• Keep an open line of communication with your banker. Get used to going into the bank for regular things like withdrawals or deposits, and make a habit of talking to the same banker whenever you see him or her. Ask about the potential to get a home loan in the future, even if you're not buying one. You would be surprised how helpful they can be in terms of letting you know your options and helping you out once they are on familiar terms with you.

If all goes well and you don't get into any further financial trouble, in two years you will be in a very good financial situation. With the bankruptcy and associated debt long behind you, a clean recent credit history and little debt, you can get all the credit you need.

If you've filed for bankruptcy, talk to your attorney now about how you can get yourself in the best financial situation as quickly as possible. Bankruptcy attorneys often maintain contact with clients for months or years, and have probably picked up a lot of good advice.

Next Steps

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