How to Rebuild Your Credit After Filing for Bankruptcy
The idea of filing for bankruptcy can be a daunting one. There will be much to consider when making decisions regarding your financial future. If you are at the point of filing for bankruptcy, chances are you are experiencing the stressors of managing your creditors and the debts you owe. If you are considering bankruptcy, one of the biggest questions a person may have is how they will be able to rebuild their credit following a bankruptcy filing.
Bankruptcy is a legal process that allows for a person or business to resolve debts that they have. Bankruptcies are generally categorized in two different ways:
One way that a bankruptcy is categorized is when debts are repaid through a liquidation of assets. Items such as property, cars, homes, clothing, etc. are sold to absolve debts.
Chapter 7: is the most common type of bankruptcy that involves liquidation of assets. There is a specific criteria that must be met in order to be eligible for this type of bankruptcy filing. Some debts that are discharged with Chapter 7 may include:
- Credit Card Debt
- Business Debts
- Medical Bills
- Utility Bills
Reorganizations are a classification of bankruptcy that allows for a person or business to repay debts that are owed to their creditors by means of a repayment plan over an extended period of time. This timeframe is usually anywhere from 3-5 years.
Chapter 13: is a type of bankruptcy that allows for a person to absolve their debts whereas they otherwise would not be able to pay them off. The person or business will present a repayment plan to the courts for approval. Chapter 13 can prevent a person from foreclosing on their properties.
Steps to Rebuild Your Credit
On average, a bankruptcy filing will stay on your credit report for 10 years. During this timeframe, it will be important to rebuild your credit by making all of your payments on time. It may be a good idea to obtain a credit card as a way to rebuild your credit. It will be important to note that you can be turned down for a credit card with a bankruptcy on your record. However, using a credit card and making regular payment on time can be a way to rebuild your credit quickly. It will be vital that you keep balances on the credit card low, making sure that you do not charge more than 30% of your total available credit. Living within your means will be important moving forward, as you do not want to find yourself in the same situation again.
Although bankruptcy may feel like the worst possible option, it can actually free you from what may at times feel like a mountain of debt that you will never be able to overcome. If you are considering bankruptcy, speaking with an attorney such as the bankruptcy lawyer Phoenix, AZ locals turn to with experience in bankruptcy proceedings will be helpful. They will be able to go over the details of your case and help you make a decision around the best way to move forward based on your debts.
Thanks to authors at Kamper Estrada LLC for their insight into Bankruptcy Law.