Life After Bankruptcy: Rebuilding Your Credit

Wonais Law

Chicago Bankruptcy Lawyer

Filing for bankruptcy is not the end of your financial journey. Once you have successfully completed your bankruptcy case, there are certain steps you should take to rebuild your credit. At DebtPros, our bankruptcy lawyers in Chicago will not only help you complete your case but also assist you in rebuilding your credit.  

In this blog we will explore effective ways to help you rebuild your credit after filing for bankruptcy. This includes understanding your financial situation, establishing a credit history, monitoring your credit, and being patient and diligent.

Your Financial Situation

Before you can attempt to reestablish credit, you must first understand your specific financial situation. You can do this by obtaining a free credit report online to see your score and review your credit report. Make a list of any debt that was not discharged in your case. Common types of debt that are non-dischargeable include student loans, certain tax debt, and citations or tickets owed to a city or municipality.

The next step is creating a monthly budget. Forming a realistic budget is important because it will help you manage your finances effectively and allow you to save money every month. To form a budget, first calculate your net monthly income (net income is your gross income minus the deductions on your paycheck). Next, subtract this from your necessary monthly expenses, such as rent, utility bills, food, and car payments. The number your reach is your “disposable income.”

Your disposable income is what you have leftover at the end of the month and should not be in the negative. If it is, you need to reevaluate your expenses and determine if there are any unnecessary expenses you can cut or reduce. Our bankruptcy attorneys in Chicago can help you with this.

Establish Credit

Improving your credit score starts with establishing a good credit history. When you file for bankruptcy, it remains on your credit report for 7 years if you filed a Chapter 13 bankruptcy and 10 years if you filed a Chapter 7 bankruptcy. Typically, your credit score will increase 12-18 months after you file.

To increase your credit score quickly there are several steps you can take. The first step is to make timely payments. Payment history is a significant factor in determining creditworthiness. Even a single missed payment can negatively impact your score. Try to avoid having any accounts go to collections or go more than 60 days past due.  When accounts go to collections, a third-party attempts to collect the debt on behalf of the original creditor.  

The second step is maintaining a credit utilization ratio of 30 percent or less. Your credit utilization ratio is your total balances divided by your total credit limit. To ensure a low ratio, pay your balances in full every month.

The last step is to obtain credit. Our bankruptcy lawyers always suggest getting a secured credit card. Secured credit cards are one of the best ways to rebuild your credit. They require a security deposit, which is typically your credit limit on the card. Over time, if you make timely payments on the card, your credit will improve, and you can then obtain a normal credit card.

Monitor Your Credit

The path to rebuilding your credit also includes regularly monitoring your credit. Monitoring your credit is important for several reasons. After obtaining a discharge in bankruptcy, creditors must refrain from reporting discharged debt on your credit report. Instead, they must report a zero balance or discharged. If they report that you currently owe them money or a late/delinquency payment, notify our bankruptcy lawyers in Chicago immediately.

Further, monitoring your credit will make you aware of any suspicious or fraudulent activity. If you believe there is a mistake, contact the credit bureaus immediately. This includes hard inquiries on your credit report. A hard inquiry is when a lender pulls your credit report to determine whether they will lend you money. These inquiries negatively impact your score. 

Lastly, make sure to understand what is on your credit report. There are two main categories of consumer credit – installment loans and revolving credit. An example of installment loans are car notes, mortgage payments, and student loans. An example of revolving credit is credit cards.

Have Patience and be Consistent

After filing for Chapter 13 or Chapter 7 bankruptcy, you will receive numerous credit card offers from different lenders. These lenders know that you cannot discharge the debt owed to them by filing bankruptcy within so many years after completing your case. Take advantage of this by obtaining one or two credit cards. Do not only pay the minimum every month on these cards, instead pay the full balance every month.

Rebuilding your credit takes time and patience. Improving your credit score doesn’t happen overnight. But by spending responsibly and establishing good credit habits, you can leave bankruptcy in the review mirror and improve your score.  At DebtPros, we will help guide you throughout the process.

Talk to a Chicago Bankruptcy Lawyer Now!

If you need help rebuilding your credit or have questions on filing for bankruptcy, contact us now to speak with an experienced bankruptcy lawyer in Chicago. At DebtPros, we will help guide you on your financial path to freedom. Unlike other bankruptcy firms, we treat you like family and are there for you every step of the way.

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