Life is certainly going to change after bankruptcy, and mostly for the better. While your bankruptcy will remain on your credit record for up to ten years, it doesn’t mean you will never be able to obtain credit, purchase a vehicle, or even own a home. It does mean however, that you may have to live without credit for a while. Specifically, you will have to rebuild you credit slowly and responsibly, as well as avoid the pitfalls that got you into debt in the first place. Consider the following steps in the event you recently filed for bankruptcy and would like to start rebuilding your credit:
How Do I Rebuild My Credit?
Since your access to credit will be limited or non-existent for a time, the first step will be to build an emergency fund to take care of your living expenses in case of a temporary cash-flow crunch. Although the size of this emergency fund will be up to you, three months’ living expenses is a rule of thumb that many people follow.
Once you start attempting to rebuild your credit, you will face the credit paradox. You need credit to start rebuilding your credit score, but you will have trouble obtaining credit because of the fact that you filed for bankruptcy. If you were able to save assets like your home or your car from bankruptcy liquidation, and you are still paying installment payments for them, making sure to pay these expenses on time can help build your credit. This applies only if you reaffirmed the debt during your bankruptcy proceeding. If you did not, your creditor won’t report your payments to the credit bureaus and your timely payments cannot improve your credit score. If you rent an apartment, paying your rent might not help your credit score, because many apartment managers do not report to credit bureaus.
In light of the above, the following are some tips on rebuilding your credit.
- If you still have at least one credit card, use it once in a while and pay off the outstanding balance in full as soon as it comes due.
- After a few months of responsible financial behavior, apply for a credit card secured by a bank account security deposit. Interest rates will be high, but you can shop around for lenders who will offer terms that you can live with. You also need to make sure the lender reports to credit bureaus.
- After a year of timely payments you might be able to obtain high-interest unsecured credit cards, in the neighborhood of 20% APR. After a second year of timely payments, you might become eligible for more reasonable rates.
- Don’t apply for too many credit cards too soon, because excessive applications can hurt your credit score.
- If your bankruptcy was the result of a single catastrophic event such as a job loss, hospitalization or a divorce, you can add a note of up to 100 words on your credit record explaining your extenuating circumstances.
Can I Obtain a Mortgage after a Bankruptcy?
You won’t be able to finance a home for a while after bankruptcy. Organizations like Fannie Mae and the Federal Housing Administration, for example, apply mandatory post-bankruptcy waiting periods of one to four years after discharge. Nevertheless, you might be better off waiting for five years before attempting to obtain a mortgage, because it might take you that long to rebuild your credit score enough to secure affordable mortgage terms. Before making any decisions in this regard, it is highly recommended that you speak with a qualified Michigan Bankruptcy Attorney to learn more about your legal options.
Contact Attorney Nancy Neal Joyce Today for Unparalleled Bankruptcy Representation
Attorney Nancy Neal Joyce is a highly skilled Chapter 7 and Chapter 13 bankruptcy attorney whose mission is to make you whole both during and after bankruptcy. If you are considering filing for bankruptcy, please call her Livonia, Michigan office at (734) 427-7772 for a free consultation. Ms. Joyce looks forward to making a difference for you.
