Even though bankruptcy laws have changed in recent years, bankruptcy can offer relief and a fresh start if you've been overwhelmed by your debts and can't keep up financially. While a bankruptcy will mean a big hit to your credit score and your access to credit, it's not a permanent situation. Your efforts over time can pay off, and you'll have earned a strong credit profile.

How Does Bankruptcy Affect My Credit?

A bankruptcy can appear on your credit report for up to ten years, and your credit score will go down - maybe into the 400's, which is a low score. Your ability to get credit after bankruptcy will depend on a number of factors: your income, your employment, and a lender's criteria for a loan or credit cards. How you manage your credit after the bankruptcy can be one of the most important factors in rebuilding a strong credit profile.

There are many reasons people end up in bankruptcy, and it's not always due to irresponsibility with money, debt and credit. People lose their jobs or face large bills they weren't expecting or prepared for, like medical bills or an uninsured disaster. Once past the financial crisis, you may still have your good financial habits, or you've learned what they are. You may have the same income and a solid employment history. Creditors know this, and you're still a consumer despite your bankruptcy.

Credit Options after Bankrutpcy

Especially in a Chapter 13 bankruptcy, you may still have credit accounts that remain open, even if the terms, the interest rate or your credit limit have changed. However, you may need to establish new accounts. One option is a secured credit card. You'll be required to deposit funds with the credit card issuer, and your credit limit might be equal to your deposit. While a secured credit card doesn't seem to have the benefits of a conventional credit card, it gives you a way to rebuild and manage your credit - both are important. Some secured cards extend credit without an additional deposit once you have a positive use record.

Regular use of your credit and timely payments create the positive data that will lead to an increase in your credit score, along with continued employment and stable residency.

Try not to carry balances. You don't want to build up debt again, and the higher the percentage of balances to your total available credit limits, the more negative the impact will be on your credit score.

Some credit card issuers will allow you to open accounts soon after you've completed your bankruptcy case. They know you've addressed your financial problems, and you won't be able to seek bankruptcy relief in the near future. After your bankruptcy case is over, you'll have to wait six to eight years before filing another Chapter 7 bankruptcy case. For Chapter 13 bankruptcy, it's a two to four-year wait.

It goes without saying that if you've filed for Chapter 13 bankruptcy, fulfilling the terms of your repayment plan is a must.

Other Steps You Can Take - Bankruptcy or Not

Your Credit Report

Review your credit report for accuracy, and take action to correct errors. You're entitled to one free credit report a year from each of the major credit reporting agencies. Stagger your requests throughout the year to allow for cost-free access every few months. You're also entitled to a copy of your report, at no charge, if you're denied credit. Understanding a negative credit decision can be important in avoiding the same situation in the future.

Errors can affect your credit score, so corrections are worth the effort. You can request corrections online when you access your report. Depending on the lending situation, even a few points could make a difference in loan approval or the credit terms you're offered.

Credit Repair Schemes to Avoid

Time and your responsible behavior are the most important building blocks of a strong credit profile. There really aren't any shortcuts, so beware of those offering you a quick fix. Some credit repair companies charge high fees for things you can do yourself, or encourage illegal activities, like providing false information when applying for credit. Beware of credit repair schemes and don't jeopardize your fresh start after bankruptcy.

Credit Counseling and Debtor Education

There are legitimate credit counseling resources that can help you learn about and develop good credit practices. The US Trustee Program Web page provides a list of debtor education resources.

Questions for Your Attorney

  • Do different creditors see different versions of my credit report? Some employers view credit reports as part of the hiring process and I'd like to keep my bankruptcy private.
  • How will my bankruptcy affect my spouse's credit scores? We kept our finances separate for the most part, but we have authorized user status on a number of each other's credit card accounts. Are there credit rebuilding strategies to use in our situation?
  • Are online requests for corrections to credit reports usually accurate in bankruptcy cases? I want to make sure that the status of my accounts correctly reflects how those debts were resolved in my bankruptcy case.