Re-establishing Credit After Bankruptcy

Saturday, January 12, 2019 - 01:20

Bankruptcy, Rebuilding Credit


People often express concern over the affect filing bankruptcy will have on their credit score, as well as their ability to re-establish credit after filing bankruptcy. The answers to these questions can be somewhat complex, depending on the circumstances.

One thing is for sure, people contemplating bankruptcy frequently have low credit scores to begin with. Therefore, filing bankruptcy makes little difference relative to an already poor credit score. In fact, filing a bankruptcy case in these circumstances may actually improve a low credit score. Think of it this way: someone burdened with multiple charge-offs, delinquent accounts, collection lawsuits, or repossessions is in credit "free-fall." Their credit score will steadily deteriorate unless and until affirmative steps are taken to improve matters. Sometimes those steps require that a bankruptcy case be filed. Once the bankruptcy is filed, the debtor's downward economic spiral immediately terminates, thereby allowing that individual to begin the process of rebuilding credit.

Secondly, people usually file bankruptcyvafter they've tried their best to resolve their economic problems through other avenues. Given the fact that bankruptcy is always a last resort, filed only to prevent economic catastrophe, its affect on one's credit score is ultimately irrelevant. If someone files bankruptcy, it's because they HAVE to. In practical terms, people who file bankruptcy shouldn't be worrying about their credit score at this time. They should be worrying about getting out of debt. They can always work on bringing up their credit score after bankruptcy. 

After your bankruptcy discharge, one of the simplest ways to get back on the path to a good credit score is to obtain a "secured credit card". These are basically debit cards that look exactly like a conventional Visa or Master Card. The applicant is required to deposit money in a financial institution and is thereafter issued a credit card with a credit limit in an amount equal to the amount on deposit. A multitude of banks issue secured credit cards. This will allow you to start working on building your credit score.

If you have questions or want to talk to a Licensed Insolvency Trustee at Welker and Associates, contact our office today. We are here to help!