When clients first reach out to us to discuss options for bankruptcy with their initial free consultation, one of the first things we discuss with them is how this is going to impact their credit. Credit scores and the processes of rebuilding your credit is the biggest stop gap that most people battle with when facing the reality of filing for bankruptcy. Understanding the facts about how it will and won’t affect you and what you can do now to start preparing to get back on your feet after filing is key. To help you understand the process better Strawcutter Law is outlining the essential facts and offering some key takeaways to get you started.
While bankruptcy helps erase or eliminate debt and will free up the stress of monthly costs, it also will affect your credit. Understanding what you need to do to shore up and prepare is the first step in dealing with bankruptcy. Here are some key insights to help you understand how it will impact your credit and what you can do to get your scores back up above 700.
- THE TIMELINE: When filing Chapter 7 bankruptcy, the line item remains on your credit for 10 years. Whereas when filing Chapter 13 bankruptcy, it remains on your credit for 7 years. Having said that a bankruptcy flagged against your credit does not mean that you cannot gain access to credit for that entire time period. One way is with the use of an ‘upfront credit card’ also known as a ‘secured credit card’ that allows you to deposit funds of say $300 that will then show up as a line of credit of $300 that you can withdraw. It is advised that you don’t utilize all of the credit line but rather only use around 30% and pay it off every month (Previously the standard, before advances in technology, was to keep a small balance on your cards. That is no longer applicable). Using an upfront or secured credit card is one way you can begin the process of reducing the time that it takes down to as low as 4 years to get your credit score back in the range of 700 – 749.
- CHECK REPORTS: Now that you have begun to face the fears, you can begin to think strategically about rebuilding your credit scores and like anything in life you can do that taking it one-step at a time. One place to begin is at FICO credit score (Fair Isaac Corporation), which is often the most important determinant in whether or not you receive credit, how much credit you can receive and at what interest rate. By understanding that FICO is an important piece to rebuilding, you can begin improving your credit score immediately. One important first step that we recommend is to check-in on your credit score on a consistent basis. This will help to quickly deal with any delinquent issues or oversights in a timely manner.
- LENDER RELATIONSHIPS: Remember that accounts included in a bankruptcy filing won’t be reported as “unpaid” or “past due” anymore, which will offer some relief. However, accounts can still be reported as “discharged” or “included in bankruptcy” even with a zero balance. To help assist in the transition and rebuilding, it is important to reach out and build a personal relationship with a lender. Connecting with people at a bank, credit union and/or auto lender can be a good way to help rebuild a line of credit and set yourself back on the path for a good credit rating.
Remember bankruptcy is not an easy choice and we understand what you are going through. Having concerns is normal, but facing your fears is essential to going forward. You can recover quickly and get your credit score back up in a short time and we can help. The team at Strawcutter Law prides itself on listening to your needs, understanding your struggle and working hard to get you moving back on the right track. Contact us by calling 407-268-6844 or email and visit our website at www.strawcutterlaw.com to book your free consultation!