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How Does Bankruptcy Affect My Credit Report?:Quick Review of Personal Bankruptcy - What do Blockbuster, the Chicago Cubs, Charter Communications, Eddie Bauer, Mark Twain, Henry Ford, Walt Disney, and Donald Trump all have in common? Each has filed for bankruptcy (http://www.smartmoney.com/personal-finance/debt/understanding-the-bankruptcy-rules-15647/). In 2005, the Bankruptcy Abuse and Consumer Protection Act was passed, and it was designed to curb the excessive numbers of people filing for bankruptcy. Why? Because many of the debtors were using it as a sort of Get Out of Jail Free card instead of as a last resort. After a peak of 2 million bankruptcies, the numbers dramatically declined. Until now. The number of bankruptcy filings is once again close to 2 million, but this time around, experts believe that few of the filers are working the system. Rather, they believe that only a small fraction of those who should file for bankruptcy are in fact filing. If you have filed for bankruptcy, you feel isolated and alone, but there are millions of other people in the same situation. You can recover from a bankruptcy - look at Walt Disney! But it does have an effect on your credit score and your financial future.
Bankruptcy and Your Credit Report - Filing bankruptcy (Bankruptcy Resources) is consistently ranked as one of the most stressful events a person can experience in life, as those going through the process can attest to. It can be difficult to see a silver lining, but there is one: you may actually improve your credit score following a bankruptcy. There is no sugar-coating the fact that it does have a big impact, but it is not forever. Just as your normal debts are reported to the credit bureaus, so too is a personal bankruptcy. It can stay on your credit record for up to 10 years, and it has a tremendously negative effect. It is viewed by lenders as worse than delinquent accounts or those in collection. If your credit score was low before you filed, be prepared for it to drop 100 points or more. This means that it will be very difficult (though not necessarily impossible) to get loans. Those that are offered will have less favorable terms, including higher interest rates and lower lines of credit. In addition, if you have debts that were not discharged when you filed for chapter 7 bankruptcy, such as student loans, child support, or taxes, these will remain on your credit report. If you miss payment on these other debts, your credit score continues its slide downhill. If you have filed for chapter 13 bankruptcy, which reorganizes your debt instead of discharging it, you will have to pay under those terms as well. So that's the discouraging news. The good news is that you can reestablish your credit and begin building a solid, secure financial life after bankruptcy.
How to Recover from Bankruptcy: How to Fix Your Credit Report and Score:During bankruptcy (Bankruptcy Law by State), your finances take a hit, and your emotional state definitely takes a hit. But after the proceedings have ended, it's time to pick yourself back up. Something that a lot of people are surprised to learn is that you can get credit after a bankruptcy. This is a great way to rebuild your credit. You can apply for a secured card from a credit card company. An unsecured card will help you modify your spending habits, but it won't have a huge effect on your credit score. You can almost certainly get a regular unsecured credit card. There is a "but" that goes with that. But because your credit score is low, you will have to pay higher interest rates, and you will see your fair share of fees, including annual fees or ambiguous "processing" fees. This is not the most attractive kind of credit, but if you can control your spending, it can be an excellent tool for rebuilding your credit. Only pay for things on your credit card when you have the money to pay them. Do not overextend yourself because you will end up in the same type of debt situation as you were before. Only this time, you can't declare bankruptcy for another 7 years. Here is another piece of good news: some lenders see someone with a bankruptcy on their credit report (http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre03.shtm) as a better risk than someone with open delinquent accounts simply because you have less debt to handle. This is why it is so important to look at your annual credit report and make sure all the debts that were discharged by bankruptcy are closed on your report. If it says that they are open and delinquent, dispute it. It takes a few years for your credit score to rebound to the level where you will get standard rates on loans and even mortgages, and if you modify your spending habits, you can increase it to well past your pre-bankruptcy level. There is a terrible stigma attached to bankruptcy, but for those who use it as the last resort and as a way to change their spending and living habits, it can be a fresh start. When you are rebuilding your credit, it takes time and some savvy use of credit on your part. Getting a credit card with a modest spending limit - and paying it off on time - is one way to do this. You can also approach someone with good credit about co-signing a loan for you (only if you can pay). As you make the payments on time, it builds both your credit and that of the co-signer. Paying your credit card bills on time, your utility bills, and your auto or signature loans, is the best way to boost your credit. Do not take on more debt that you can handle: one step at a time. One other word of warning: some "debt relief" companies out there say they can "erase bad credit" or remove bankruptcies from your credit score. They cannot. Only time, and some good decisions on your part, can improve your credit score. The best way to improve your finances after a bankruptcy is to learn from your mistakes and change your habits. Spending and saving are all about habits: when we get into the habit of buying what we want, when we want, we end up with mounting credit card bills. When we get into the habit of saving up for something we want and buying it when we have the cash or paying bills on time, or adding to our savings, we have a great deal more security and peace of mind.
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