The Intangible Changes
Many people are understandably concerned about how a bankruptcy will impact their lives after the case is closed. For these folks who haven't yet filed, they are ordinarily thinking the biggest change in their lives will be issues related to credit scores and challenges in qualifying for loans. However, when I ask my clients what is the biggest change in their lives after they file bankruptcy, the first thing they say has nothing to do with credit scores and loans. Instead, they always tell me they cannot believe how much more peaceful their lives became. They often say they did not realize how unbelievably stressed out they were about the debts and how that stress was impacting every aspect of their lives, particularly their close relationships with friends and family. After bankruptcy, they report, life without all the stress is like a little taste of heaven! The point is, don't underestimate the very valuable emotional relief you will feel once the debts and all the attendant calls and collection and court processes are in the past.
Credit Bureau Issues
Now, it's true that a bankruptcy stays on your credit report for 10 years from the date of filing. Having that on your credit report could impact your ability to obtain certain kinds of insurance and it may also prevent you from obtaining certain types of upper management jobs in the financial sector. However, a bankruptcy on your credit report does not mean you will be unable to obtain a loan for ten years. In fact, very shortly after you file bankruptcy you will be targeted by local car dealerships that are dying to give you a loan for a new vehicle. Why? Because you are a borrower who now has no debt and who cannot file bankruptcy again for eight years. These loans usually come with a double digit interest rate because of your bankruptcy and previous credit problems, but the point is you will be eligible for loans pretty quickly after you file bankruptcy.
Improving Your Credit (FICO) Score
After bankruptcy, there are a couple of ways to start raising your credit (FICO) score so you can begin qualifying for decent interest rates on loans. First, you should pull your credit report about three months after your case closes. Review it closely to make sure that all of the debts listed on it now say they have been discharged in bankruptcy. It is the creditor's responsibility to update the credit bureau accounts on your credit report, but frequently they fail to do so. When that happens, it falls on you to initiate a dispute of the item to make sure it shows that you no longer owe the debt. The instructions for disputing inaccurate items on your credit report are usually printed right on the report itself. Disputing inaccurate accounts will help raise your credit score more rapidly.
The other thing you should do to more rapidly raise your credit score is to make sure you have at least three loans with creditors who will report your timely payments to the credit bureaus. I am no expert at credit scoring, but the articles I've read on the subject say it's good to have different kinds of loans, too. So you may want to have a car loan, a credit card, and perhaps an RC Willey or Les Schwab type account where you are purchasing collateral over time. Recently, the web retailer Amazon has come out with a secured credit card that is designed solely to help people build their credit. You can read more about it here.
The key is to make absolutely certain you get loans that you know you can very easily afford. That last thing you want to do is get a loan with a payment you cannot afford and be right back in the same boat again!
Using these credit rehabilitation techniques, I've had client raise their credit scores from the 400s to the high 600s during the two year period following bankruptcy. You can do it!