Rebuilding After Bankruptcy
Congress has said that one aim of a consumer bankruptcy is to give the debtor a fresh start. Congress and the bankruptcy courts provide a specific process for eliminating debt, but offer no guidance when it comes to rebuilding your financial life after a bankruptcy. Fortunately, the rebuilding process is not difficult, but it does require some time and effort.
Immediately after your case closes (usually soon after the discharge order is issued), you should obtain a copy of your credit report. Federal law states that you are entitled to one free copy of your credit report every twelve months. The "big three" credit reporting bureaus (Experian, Equifax, and TransUnion) have established a web site for obtaining these reports free of charge: https://www.annualcreditreport.com
Once you have obtained one free credit report from each credit reporting bureau, review each report for errors. All of the credit bureaus have simple instructions for contesting erroneous information on your report. The debts that were discharged by your bankruptcy should be listed as "Discharged in Bankruptcy" with a "Zero Balance." These discharged debts should reflect no activity after the date of your bankruptcy filing. After the credit bureau updates its records, it will send you a new credit report. Review this new report for errors. You may need to repeat the process once or twice before your report is finally accurate. Remember, your credit report is only as good as the information the credit reporting bureau receives. It is your responsibility to ensure that it has accurate information. It is also wise to check your credit report at least twice each year to prevent fraud and erroneous reporting.
Once you have corrected your credit report, it is time to rebuild your credit score. Your credit score is a number that lenders use to estimate risk, and is made up of several aspects. Approximately 1/3 of your score is based on your payment history; 1/3 is your available credit; and 1/3 is various items like types of credit and length of credit history. Unfortunately, immediately after a bankruptcy most credit scores are terrible. The best way to rebuild a credit score is to start a new, responsible history of managing credit. Since approximately 1/3 of a credit score is based on payment history, many individuals have found that they can quickly rebuild by making on-time payments to a secured credit card or small bank loan (that may require a co-signor). On-time payments to a secured debt, such as a home mortgage or auto loan, will also improve your score.
One word of caution: avoid negative reports at all costs! A thirty day late will significantly harm your rebuilding efforts, as will a collection account or any other derogatory report. If you begin having difficulty, speak with the creditor immediately and make payment arrangements. The road to financial recovery takes persistence and some patience. However, if you follow the above steps, you will see steady improvement each month.