Restoring Your Credit After Bankruptcy

The Effect of Bankruptcy on Your Credit Score

Many people believe that bankruptcy will destroy their credit and make it impossible to get approved for credit cards, loans and mortgages in the future. While there is some cause for concern in the short term, bankruptcy may actually help boost your credit score over time. Credit scores are made up of a number of factors. First, a credit score takes into account your payment history and habits. If you cannot afford to pay your bills on time because of financial hardship, your credit score will take a hit. Secondly, your credit score takes into account your debt-to-income ratio. Owning credit cards that are nearly maxed out will also harm your credit score.

Bankruptcy can actually help to resolve these problems. Chapter 7 or Chapter 13 bankruptcy filings will help you to either discharge your debts or reorganize your payments. With debt being discharged and payments becoming more manageable, you will no longer make late payments and will improve your debt-to-income ratio.

The Process of Rebuilding Your Credit After Bankruptcy

Credit Card DebtAfter you have successfully gone through your bankruptcy case, credit card companies and other lenders may be willing to offer their services because you will be either on your way to becoming, or are already, debt free. This enables you to borrow more. Furthermore, lenders or creditors know that you will not be able to file for bankruptcy again for some time, and will therefore be willing to lend.

This may seem like a predatory lending practice, but it also helps the debtor rebuild their credit if they do not fall back into the same traps that got them into trouble in the first place. At first, you may have to start rebuilding with low credit limits and/or high interest rates, but as you boost your credit score, better offers will be easier to come by. While a bankruptcy filing will appear on your credit report, it will become increasingly less important as your borrowing practices improve.

Tips in Restoring Credit After Filing for Bankruptcy

  • Do not to close any accounts after you open them.  Closing a credit account can show up as a black mark on your credit.
  • Make your payments in full and on time.  After completing the bankruptcy proceeding, you may wish to add a loan down the road, such as a car loan that you can afford.  Be sure that you make the payments as required to further improve your credit score over time.
  • Avoid debt consolidation offers from finance companies.  You may also want to open new checking and savings accounts which will serve as a basis for your new life, after a bankruptcy.  Debt consolidation offers typically carry a hefty interest charge.  The last thing you want to do is to get back into the situation that caused you to file for bankruptcy in the first place.
  • Periodically review your credit report.  Checking your credit will ensure that your credit is continuing to improve and that there are no mistakes in your credit history that could be damaging.  A great website where you can obtain a free credit report from each of the three agencies is
  • Prepare a budget.  Recognize and know your limitations with respect to your budget and the amount of money that you have available to spend.  When rebuilding new credit you should be careful, as the credit card companies are more than cognizant of the fact that you can only file for Chapter 7 bankruptcy once every eight years.  Therefore, they may be more inclined to lend you more money than you had prior to filing for bankruptcy as you will not be able to discharge any debt for a significant period of time.

It is important to use the Bankruptcy Code as it is intended: to obtain a fresh start. This means that you must avoid the practices that got you into the position that led to a bankruptcy petition. Paying credit cards and other bills on time will greatly improve your credit score. Paying off your balances each period and not approaching the credit limit will also help. Another great way to improve credit is by using a gasoline card, individual store credit cards and even secured credit cards. Once your practices improve with these lenders, they may offer you better credit cards with lower interest rates and high credit limits.

Call a NJ Lawyer About Restoring Your Credit After Bankruptcy

If you are unsure about whether you should file for bankruptcy because you are worried about the damage to your credit, you should contact an experienced bankruptcy attorney who will put your mind at ease about the whole process. Villani & DeLuca, P.C. bankruptcy attorney Robert H. Johnson, Esq. can help.

Call (732) 965-3390 today for a free initial phone consultation.  

Villani & DeLuca has two convenient locations in the Jersey Shore area.  Our offices are located at 35 Court Street in Freehold and 703 Richmond Avenue in Point Pleasant Beach.  Don’t let financial hardship ruin your life. Call now to speak from an Ocean County and Monmouth County bankruptcy attorney.