Life After Chapter 7 Bankruptcy

Learn how to rebuild your credit after Chapter 7 bankruptcy.

Chapter 7 bankruptcy wipes out credit card balances, medical bills, and other qualifying debt so you can get a fresh financial start. It comes with a downside, however—it can hurt your credit initially. Even so, you can start rebuilding your credit immediately after your case ends, and in time, rebuild your credit after Chapter 7 bankruptcy.

How Long Does Chapter 7 Bankruptcy Last?

The average Chapter 7 case takes approximately three to four months to complete. It can take longer if you have a complicated matter or if creditors object to your discharge, but such cases are rare. If you’re like most, your matter will move through the process without a problem, and you’ll be able to begin rebuilding your credit right away.

How Long Does Chapter 7 Bankruptcy Remain on Your Credit Report?

A Chapter 7 bankruptcy will usually stay on your credit report for ten years. But this won’t prohibit you from obtaining new credit and moving on with your life. In fact, most debtors start receiving new credit card offers shortly after they receive their discharge.

Credit card companies realize that you are more likely to pay back your debts after bankruptcy. Why? Your discharge will free up money for other bills. Plus, you won't be able to wipe out debt again for many years. Find out when you’ll be eligible for another bankruptcy discharge.

Rebuilding Credit After Bankruptcy

As discussed, you will typically begin to receive new offers for credit after bankruptcy. However, be aware that many new credit card offers will have low limits, high-interest rates, and high annual fees. Reviewing the offer terms carefully before signing up for a new credit card after bankruptcy is essential. The goal is to accept a credit card with the highest possible limit because credit reporting agencies rate you based on your total available credit. Not only can lower limits can harm your score, but you’ll want to pay off the majority of your balance each month.

If you don’t qualify for a typical, unsecured credit card, you might want to start rebuilding your credit by getting a secured credit card from your bank. You’ll deposit a certain amount of money in the bank as collateral for the card. In exchange, you have a line of credit equal to the amount in the account. A secured credit card rebuilds credit because payments are typically reported on your credit report—you’ll want to be sure that will happen.

Also, it’s essential to examine your credit report for mistakes after your discharge. If you notice an error, correct it promptly so that it doesn't derail your efforts to rebuild your credit.

Make a Budget to Avoid a Future Bankruptcy

If you filed for bankruptcy to wipe out excessive credit card debt, review your spending habits, and make a budget to help you avoid bankruptcy in the future. You’ll want to be sure to follow your budget and avoid buying items on credit that you can’t afford to pay for in cash. If you take out new credit cards, pay off most, if not all, of your account balance each month so that you don’t accrue interest. This also keeps your available credit high—a factor that drives up your credit score.

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