Law and Legal
Is Rebuilding Credit after Bankruptcy Difficult?
Even though most people don’t like the mention of bankruptcy, this mechanism is actually put in place to protect people (and businesses) from critical financial problems that they can’t find their way out of. Even though you may consider bankruptcy a personal failure, the majority of personal bankruptcy filings in the US are actually the result of unexpected medical expenses.
That being said, even though bankruptcy is here to help you, it is not a consequence-free process. People who file for bankruptcy can lose a lot of their assets and one more thing which may be even more important in the USA today – their good credit score.
We discussed this topic with bankruptcy attorneys at Law Offices of Mark L. Miller who agreed to share information about bankruptcy and credit score, provided that it’s understood that this article is informational in nature and does not constitute legal advice.
When Can You Start Rebuilding Credit
The simple answer is – the sooner the better. Even though your credit score is going to take a serious hit, and it may take several years to get back to the pre-bankruptcy levels, there still are things you can do.
Instead of accepting that you have a low credit score, you should start rebuilding as soon as possible. After all, there are levels to bad credit score. What you will essentially be doing is not that dissimilar to what young people do to build up their credit score from scratch. It’s just that you will be starting off with a bit of a handicap – like in golf.
There Are Credit Building Products Out There
Despite what you may think, bankruptcy is relatively common in the US. People file for bankruptcy all the time, and there is a whole industry built around it. Starting with financial advisors, bankruptcy attorneys and even banks and other financial institutions, bankruptcy is an industry in its own right.
To that effect, there are specialized banking services catering to people who are recovering from bankruptcy. A secured credit-building loan might be exactly what you need. These loans are created to be largely formal – that is, you won’t be able to spend the money while the loan is being paid off. Instead, these loans serve to show that you are able to pay your dues every month – which your bank or credit union will confirm.
What If You Need Money?
If you need to be able to use your money, a loan is not the best option. Fortunately, there is a different option – a secured credit card. In most cases, credit card debt is not secured (which makes it easy to write off the debt during bankruptcy). However, these special credit cards have a limit which typically matches the amount of money you put down as a deposit.
The reason why you should use your credit card to pay for things, rather than pay in cash is similar to the reason why you would get a loan – showing that you are capable of paying off your credit card debt each month without issues. This will look great on your credit report.
You will have to learn to budget properly and to manage your money more responsibly, there’s no way around it. One of the things you should try doing is checking your credit score at least once a month. Chances are that you will not like what you see at first, but seeing improvement over time should serve as a positive reinforcement.
It’s probably not going to be easy, and it’s not going to happen overnight, but if you are fiscally responsible, you will ultimately get your credit score back on track.