You will be surprised to learn that recovering from bankruptcy in 2016 is much faster and easier to accomplish than it has been in years past. There are several reasons for this:
- the federal bankruptcy law has changed – under current law, if you file and complete a bankruptcy case you cannot obtain a discharge in a 2nd case for up to 8 years [see this article on our blog for specifics]. You are therefore a better credit risk after your case is over than you are before you file.
- once you have completed your bankruptcy case, your debt to income ratio will greatly improve. You will have more money available to pay new creditors in a timely manner.
- because so many people in the Atlanta area have filed bankruptcy, it is not unusual or shocking to anyone
- the 3 main credit bureaus use a credit scoring model developed by the Fair Isaac Company. According to the Fair Isaac website, 30 percent of your credit score is based on how much of your available credit you have used. 35 percent of your credit score is based on payment history.
- After bankruptcy, your credit utilization will be zero or close to zero – this means that you have little or no outstanding debt.
- After bankruptcy, your outstanding balances on old credit will be zero because all of your debt will have been discharged. The impact of your “bad” payment history will start to fade about 6 months after your old accounts are “reset” to zero.
- If you reaffirm a debt in Chapter 7 or pay a debt in Chapter 13, that will show as a positive for your payment history
Credit scoring is designed to predict future behavior based on your current financial position. While bankruptcy does show that you have used the law to eliminate debt, it also documents that you are not a candidate for a (new) bankruptcy and it shows that you are no longer burdened with old debt.
How Fast will my Credit Bounce Back?
Our experience has been that at the time we file your case, your credit score was likely depressed because of excessive debt and because of a poor debt to income ratio. In some cases, your score may dip a few points shortly after filing, while in other cases, your credit score will not move at all.
About 6 months after we receive your bankruptcy discharge, you should start to see some improvement in your credit score, especially if you take steps to rebuild your credit like applying for a small bank loan, or obtaining and paying on a secured credit card.
About 1 year after discharge you should see a significant improvement in your credit score so that you will qualify for car loans and some mortgage loans. We frequently hear from clients who have credit scores in the 600 to 650 range at 1 year post bankruptcy. 2 years after exiting bankruptcy, many more mortgage loans will be available to you as well as vehicle finance loans at competitive rates.
Will I Pay Higher Interest Rates After Bankruptcy?
Yes, at least initially. Interest rates reflect risk – until your credit score reaches 600 to 650 (about 1 year post bankruptcy), you will pay higher interest rates. Again, you can speed up the credit restoration process (and qualify for lower interest rates) by applying for small lines of credit and paying them fully and timely. You have to show that you are a responsible user of credit.
Should I Hire a “Credit Repair” Company?
Our experience has been that time, your responsible use of credit and stability (both job stability and residential stability) will result in an improved credit score and credit profile. Credit repair companies can’t do much to speed up the process because their techniques are focused on challenging negative credit entries (and post bankruptcy your outstanding balances will be zero). We do not recommend using a credit repair company after bankruptcy.
Will Ginsberg Law Help Me Restore my Credit?
As part of our bankruptcy case representation, we remain available to you for advice about the steps you can take to improve your credit. We welcome calls or emails from any of our past clients at any time. One step you should take right away is to put a credit freeze on all three of your credit bureau accounts – click here to learn how.
