Life After Bankruptcy
At the debt relief law firm of Buckrop & VanDeVelde, our attorneys and staff answer questions every day about what effect a bankruptcy will have on clients’ lives. Will they lose their homes? Will they ever be able to get a new loan for a home or car? How long will a bankruptcy stay on their credit reports? Will they ever be able to obtain credit again?
The truth is bankruptcy in Illinois or Iowa will have a negative impact on your credit rating. But if you are considering bankruptcy as an option, your credit rating is likely already low or soon will be because of delinquent accounts, foreclosures, and repossessions. Also, a bankruptcy may allow you to re-establish yourself and start rebuilding credit faster than other methods would allow.
How Long Will a Bankruptcy Stay on My Credit Report?
A bankruptcy will stay on your credit report for 10 years, and you can expect a drop in your credit score immediately following a bankruptcy filing. You may ask, “Why would I ever file a bankruptcy if I will be able to pay off my debt sometime in the future?”
The answer is that a bankruptcy may allow you to re-establish your credit faster than other methods or keep you from struggling to repay the debt over the years. As a general rule, negative information contained in a credit report, such as late pays, repossessions, and foreclosures, can stay on your credit report for up to seven years. Often, while you are struggling to repay your debts, you are making late payments and possibly falling further behind with some creditors while trying to pay off one creditor at a time.
The result is that the creditors you are not paying or are paying late will report negative information to credit reporting agencies. The negative reports can remain on your credit report for up to seven years! Therefore, you may find yourself still struggling to repay your debt or to re-establish your credit long after the bankruptcy would have disappeared from your credit report.
When Can I Re-Establish Credit After a Chapter 7 Bankruptcy?
Normally, once you receive your discharge in bankruptcy, you can begin to re-establish your credit. Most individuals who file a Chapter 7 bankruptcy receive their discharge approximately 60 days after they have filed their case. If you reaffirm debt on a home or car, the creditors will most likely be reporting that your payments are being made on time as they become due. The positive reporting will help increase your credit score.
You may find it difficult to obtain some types of credit immediately following a bankruptcy, such as a home loan, or unsecured debts such as credit cards. But as your credit score improves and your bankruptcy moves further into your credit history, you will find lenders again willing to loan you money for a new home, car, or unsecured lines of credit. Past clients have reported a credit score of over 700 within two years of filing a Chapter 7 bankruptcy!
When Can I Re-Establish Credit After a Chapter 13 Bankruptcy?
Unlike a Chapter 7 bankruptcy, a Chapter 13 bankruptcy is not over in a short period of time. A Chapter 13 bankruptcy will take, on average, between 36 and 60 months to complete. But once your Chapter 13 bankruptcy plan has been confirmed, your creditors are not allowed to report negatively to the credit reporting agencies. The reason for this is that a Chapter 13 bankruptcy plan creates a new contract between you and your creditors, and therefore as long as you are making your monthly payments to the Chapter 13 trustee on time, you are paying the creditor as agreed. This does not mean the creditor will report you are paying as agreed. In most circumstances, the creditor will simply not report and instead update your account showing a bankruptcy was filed. But if you have house payments or car payments that you continue to pay, then the lender will likely continue to report positively.
You may even obtain new credit with the court’s permission while you are still in a Chapter 13. It is not uncommon for a Chapter 13 bankruptcy debtor to refinance his or her home through a new lender after making payments on his or her bankruptcy for a year. After you receive your Chapter 13 bankruptcy discharge, you may then seek credit as you had before filing your bankruptcy.
Steps You Can Take to Begin Rebuilding Trust With Creditors Right Away
Keep your eye on your credit report Following the discharge, make sure the credit reporting bureaus reflect the debt that has been discharged and that you now owe a zero balance. If you are in a Chapter 13, confirm that no negative reporting is occurring. The balance is part of the restructured plan. This may require actively working with your former creditors to accurately report the discharge. In the event that your creditors are still reporting negatively, you should dispute the report directly with the credit reporting agency. If you go to the various websites for the major credit reporting agencies, you can find guidelines on how to dispute a credit report.
Open a new line of credit and keep up-to-date with your payments There are credit card companies that offer secured lines of credit. Often, you will pay a certain amount of money, for example $500, and you will have access to credit charge for purchases up to that amount of money. Yes, it is your money, but often these will be reported as a line of credit with you making positive payments. It will reflect as credit on your credit report. You will be billed monthly, just like a revolving credit card. Make sure you stay current on your payments. It is a good idea to never carry a balance of over one-third of the line of credit.
Do not avoid credit. Instead, use it wisely Often, individuals claim they will never use credit again. While it is a good idea not to get in over your head with credit card debt, it is not a good idea to avoid credit altogether. The reality of our world today is that at some point in time you will need credit. Whether to buy a home or a car or to make needed repairs, you will need credit. If you avoid re-establishing credit, then your credit score will not improve and you will likely either be denied loans or pay a higher interest rate as a result.
Contact Our Moline Lawyers for Questions About Your Credit Score and Credit Counseling
If you have questions about bankruptcy and how it can help, and you live in Western Illinois or Eastern Iowa, call our office to speak to one of our experienced bankruptcy attorneys. Our office is located in The Law Centre in downtown Rock Island, Illinois, just a short distance from both Iowa and Illinois federal courthouses.
Our clients have access to our friendly and helpful lawyers and staff throughout their bankruptcy and beyond. Since we are a family debt relief firm, we do not have a high turnover of attorneys and staff. You can be assured we will all be around to help you for years to come should the need arise.
Call us toll free at 800-627-5704 or contact us online to arrange a consultation with an experienced local bankruptcy attorney today.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.