At Bankruptcy Rescue, we prepare clients for life after bankruptcy by explaining the steps they can take to rebuild their credit. 

The most unknown aspect of filing for bankruptcy are the post bankruptcy ramifications. Prospective filers want to know “How long will a bankruptcy negatively affect my credit? It is a good question, the answer to which is very misunderstood. The short answer is, practically, not as long as you think. Unfortunately, it is widely believed and even publicized that a Chapter 7 Bankruptcy will ruin your credit for 10 years. Nothing can be further from the truth!

The truth is, a bankruptcy filing will stay on your credit for seven years, and you cannot file bankruptcy again for 8 years.  But that does not mean it is seen as a negative "mark on your credit" the entire time. Because companies that offer credit know that you can’t file for eight years, you actually become a better credit risk than some who can. The key is to rebuild a good credit history - which can be done in less than two years. Therefore, if you qualify for a chapter 7 bankruptcy and you cannot realistically repay all of your debt within two years, it is simple common sense to file for bankruptcy now.

The next important question is “how do I rebuild a good credit history after filing for Chapter 7?” The answer is as simple as obeying these three simple rules:

    1.     Always monitor your credit.

    2.     Establish a secured credit card with a small balance.

    3.     Pay all credit reported payments on time.

Always Monitor Your Credit

There are three major credit reporting companies that track your credit: Equifax, Transunion, and Experian. For at least the first two years after a Chapter 7 discharge of creditors. All three must be monitored for several reasons. First, mistakes can and often do happen. A discharged creditor will sometimes re-appear on your credit mistakenly. Creditors sometimes misreport information. The faster you catch it, the faster it will not hurt you.

All three companies offer a credit monitoring service for about $15.00 per month – a good investment for somebody that has gotten a fresh start from a bankruptcy. Each company will monitor all three. I also suggest paying that monthly fee with a secured credit card.

Establish a secured credit card with a small balance.

Take $500 and start a secured credit card but never allow the balance go over $200.00. Pay the monthly $15.00 credit reporting fee with it and some other reoccurring credit reporting debts with it like your DTE Energy bill which now is reported on your credit. Pay that $200 every month religiously. Every time you make a payment, the higher your score gets.

Another option is to  charge about 15 to 20 percent of your limit. For example, if your limit is $300, charge no more than $60..then put the card away. Make the minimum payments ON TIME EVERY SINGLE MONTH! Once you reach a zero balance, charge up to 20 percent again and repeat the process. This process will take time, so be prepared to practice patience for at least 18 to 24 months.

Pay all credit reported payments on time

By regularly monitoring your credit, you will know what creditors report to your credit. Make these payments a priority. Typically, your mortgage, vehicle, utilities and secured credit cards are reported on your credit and all will can be used to rebuild. When you have two years of perfect payments to these creditors and if you do not incur any significant debt, I guarantee your credit score will be respectable – in fact it likely be higher that it was prior to filing bankruptcy. You will be a better credit risk than before.

By filing bankruptcy and following this plan, you will truly have a fresh credit report to make a fresh start.