How to Rebuild Credit After Bankruptcy

Filing for protection under the Bankruptcy Code can bring an enormous amount of relief from pre-existing debt in order to start down the road to a fresh financial start. One major component to reaching financial success after bankruptcy is rebuilding your credit.

Filing for protection under either Chapter 7 or Chapter 13 is often the first step towards rehabilitating your credit rating that may have been compromised by unfortunate circumstances prior to filing bankruptcy. Under Chapter 7 bankruptcy, your unsecured non-priority debt should be completely discharged, so you start with a blank credit slate and can start building credit almost immediately.

If you filed for Chapter 13 bankruptcy, you will be in a repayment plan that will also help start your credit down the path to recovery, and a good repayment history works in your favor when applying for credit in the future.

Behavioral Changes

After bankruptcy, one of the most important things you can do to rebuild your credit is prove to future creditors that you are no longer a financial risk. Making payments on time, living within your means and following a "no-frills" way of life all show creditors that your financial behaviors have improved and that you have learned good financial habits.

First, determine what expenses are essential and which are non-essential. Essential expenses include housing, groceries, child care and car expenses. Non-essential expenses, like going to the movies or out to dinner, can be avoided until credit is established. It is also important to start a savings account and develop a cushion in your checking account to avoid overdrafts and fees.

One of the most important factors of new financial responsibility is consistent income, even if it is in the form of a part-time job. Steady income will help you make payments and start saving. It also shows creditors that you are making an effort to change your financial habits.

Applying for Credit

Fortunately, credit rehabilitation can happen in as little as six months after filing for bankruptcy. One good initial step is to apply for a credit card. Once approved for a credit card, then it is important to use the card once a month in an amount that you know you can pay off in full at the end of the month.

You will build credit by incurring a small debt each month and by making payments in full and on time every month.

When rebuilding credit after bankruptcy, slow and steady wins the race. If you can prove your financial behaviors have changed for the better and you are able to present good payment histories to creditors, you will have an easier time reestablishing credit.

If you or a loved one are considering bankruptcy, please contact an experienced Dallas bankruptcy attorney.