For many people, filing for bankruptcy is the best option they have to find relief from their mounting debt. In many cases, bankruptcy allows you to pay off your creditors for a fraction of what you owe. However, this doesn't mean that there aren't financial repercussions.
The impact of bankruptcy on your credit is dependent upon several factors. For example, if you have excellent credit going into bankruptcy, filing can cause your score to drop dramatically. If your credit score is poor, however, there won't be as much of an impact.
Be aware, however, that if you choose bankruptcy, you have the ability to rebuild your credit much more quickly. This is because bankruptcy allows you to eliminate debts that have plagued your credit score for years. Additionally, now that those debts are gone, you can begin rebuilding your finances without the strain of past debts.
Typically, if your file for Chapter 13 bankruptcy, the mark will remain on your credit for 7 years. A Chapter 7 bankruptcy will remain on your credit for 10 years. Keep this fact in mind while deciding which debt relief option is better for you.
Whether you choose Chapter 7 or Chapter 13, bankruptcy will have a dramatic impact on your credit, credit score and finances. Once your bankruptcy is discharged, you can take the steps necessary to being rebuilding your life. Here are few tips to help you rebuild your finances and credit after your bankruptcy is discharged.
Check Your Credit Score
Once your bankruptcy is discharged, your first step needs to be checking your credit score. There are three major credit bureaus, Equifax, Experian and TransUnion. It is critical to secure your score from each bureau to understand your options, see how bankruptcy has impacted your score and check for any discrepancies.
Look over all three credit reports carefully and look for any discrepancies, such as accounts that were discharged or individuals who opened accounts using your social security number. If you find any errors, contact the corresponding credit bureau and dispute the errors. The entire process to dispute an error can take several weeks or months, so don't wait to contact the bureau to have your credit reported fixed.
Create a Budget
One of the most effective ways to rebuild your credit is to ensure you do not cause any further damage. Creating a realistic budget will allow you to pay all your bills on time, which will help you avoid any future negative marks.
Many people who are going through bankruptcy already have an airtight budget, especially if they filed for Chapter 13 relief because, to pay back creditors, any disposable income was given to a trustee, who then distributed the funds. Remaining on your bankruptcy budget is a great way to help you stay on the right track and begin setting money aside for the future.
Consider a Secure Credit Card
Finally, one of the most effective ways to rebuild your credit slowly is to apply for a secure credit card. Unlike a traditional, unsecured credit card that provides you with a line of credit, a secured card requires you to put down a deposit, and this deposit is used to make everyday purchases.
The credit card company will report your on-time payments to the three credit bureaus, which can help slowly rebuild your credit. Often, if you continue to make on-time payments, the credit card company will offer you the opportunity to apply for an unsecured credit card.
Bankruptcy is a great option for individuals who are seriously in debt and want to begin rebuilding their finances. If you have any further questions about bankruptcy, contact The Law Offices of Travis Van Winkle, LLC.