October 23, 2018

Recovering from Bankruptcy

One of the most frequent questions I am asked has to do with recovering from bankruptcy. There is no hard and fast answer to this problem, but here are my observations:

1. Recovering from bankruptcy has become much easier in recent years than it was fifteen years ago.

2. Many lenders look to a potential borrower’s credit score, as opposed to looking at credit reports for specific red flags. Years ago, lenders had their own “scoring system” – the mere existence of a bankruptcy could result in turn down. Now, many lenders rely on the credit bureaus score which does not specifically identify whether someone has a bankruptcy. Thus, if you can get your credit score up, your bankruptcy will have no effect whatsoever for those lenders.

3. Many lenders realize that you are actually a far better credit risk after filing bankruptcy than before. After all, who would you rather loan money – someone who has $80,000 in credit card debt who might file bankruptcy tomorrow, or someone who just filed, has no debt and legally cannot file for 6 years?

4. If you work at restoring your credit after bankruptcy, you can get your credit score up within 6 months to a year.

5. Although the exact algorithms used by the credit bureaus are secret, it does appear that the weight (importance) assigned to a bankruptcy filing decreases as time goes by from your date of discharge.

6. A good first step to restoring credit is to get copies of your credit reports and challenge any entries which still show debt owing. Remember, credit reports are basically a history of your credit life. A bankruptcy can discharge your legal obligation to pay but it cannot change history. A credit history showing a zero balance and a bankruptcy discharge is better than a credit history showing (incorrectly) thousands of dollars of outstanding debt and a bankruptcy. Remember, creditors who have been discharged in bankruptcy are not going to make correcting your credit report a priority – you need to take an active role in this process.

7. Another helpful step is to find a secured credit card that becomes unsecured after four or five months of steady and timely payment. You can find secured credit card information on the Internet.

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