Filing for bankruptcy impacts an individual’s credit rating for several years. While Chapter 7 bankruptcy is generally viewed as an easier way out for borrowers who are overwhelmed with debt, law changes in 2005 require that most individuals file for Chapter 13 bankruptcy, which allows individuals to hold onto property and repay debts over three to five years. Filing for either classification severely affects a consumer’s credit ratings for about six to 10 years–but as with all other negative marks on a credit report, bankruptcy filings are eventually removed.
For individuals who complete either process, bankruptcy credit repair should begin immediately to ensure that by the time the bankruptcy is removed from a credit report, all other score criteria are in good standing. This includes the following:
- Utility payments
- Tax liens
- Loan payments
- Any existing credit cards
All accounts should be paid in a timely manner for effective credit rating repair. Utility companies do not report payments; however, after a period of time, they do report missed payments. Unpaid liens stay on a credit report for an extended period of time. In addition, it is generally recommended to open one or more credit lines as soon as possible–as long as the balance is kept low and the monthly fees are paid reliably. After bankruptcy, it is often possible to obtain a secured credit card (by providing the lender with cash upfront) and use it to begin building credit. Be sure to keep the balance well below the total available credit line, as high balances thwart efforts toward repairing credit report scores. Finally, get a yearly copy of your credit report to ensure that all information is listed accurately. In time, consumers who are patient and diligent will see their habits reflected in their credit ratings.
