The credit repair after bankruptcy should be part of the plan when one is considering bankruptcy. Why?
If finances are in the dump, and you are trying to figure out the best course of action, fully investigating all your options is of utmost importance.
There are two types of bankruptcy for most individuals. Those being
Chapter 7 (full bankruptcy) and Chapter 13 (the repayment plan).
Depending on how deep your debt is and the practices of your present
lenders, some preparation before the bankruptcy is beneficial for rebuilding your credit afterward.
If you present yourself at an attorney's office for filing the bankruptcy, depending on the attorney and their case load, you may not get as much information as you'd like to get the most benefit from your bankruptcy. There is usually some information you wished you knew ahead of time to make the most of your individual situation. Though your attorney hopefully has your best interest at heart most likely they do not have the time to completely assess your situation.
It is much like going to the doctor, they don't know every pain and symptom you have. The quality of your care in many cases has to do with what you put into the process yourself.
That said, knowing the process a bit before you go into it can help you get the most out of your bankruptcy and help you avoid any problems. In either type of bankruptcy the accounts that are listed are part of the bankruptcy. If you have accounts that don't have a balance they shouldn't become part of your bankruptcy filing.
If they do have a balance and for some unforeseen reason you or your attorney neglect to add that account they can very well not be part of the bankruptcy filing. In many cases there are some creditors who will close the account at any sign that looks to be heading in this direction.
There are some creditors who will close your account even if they did not become part of the bankruptcy case and you have a zero balance. These are usually major creditors but can sometimes be store cards as well.
You will in most cases be notified of such closures. If you have other store cards and they have low balances it will be in your best interest if possible to get those to zero and not include them in your bankruptcy.
This will give you something to work with in the after bankruptcy credit repair.
Generally with a chapter 7 bankruptcy, once you have filed, the discharge is about 3-4 months away. You can then start slowly on your credit repair after bankruptcy.
In a chapter 13 bankruptcy some debt is wiped away and the rest is restructured making those payments easier to handle. The payments are stretched out for a 3-5 year period. You are still in the bankruptcy in this period so creating new credit would be very derogatory. If you have money left over during a chapter 13 (you became ultra frugal) or your situation changes and you find yourself with more funds, then paying down the bankruptcy debt faster (closer to the 3 year period rather than 5 years) would be the best course.
This will allow you to finish the bankruptcy earlier and then allowing you to move on and add new credit that will help you to repair credit after bankruptcy.
Even though you are paying debt in a chapter 13 bankruptcy it is not considered to be paid as agreed and therefore negative on your report.
Once you are able to work on the credit repair after bankruptcy you will want to start slow and keep close to all the "rules" of best credit.
Many times in a bankruptcy if you have a car even with a loan still attached to it you will have the option to keep it. If you are able to handle that loan more comfortably then this is another feature to show how you will be handling your debt obligations from that time forward.
The first 6 months it may be best to try and just live an all cash life style. You will be making sure you are living within your means and any left over money is best deposited in the bank.
Your first new credit after bankruptcy will in many cases be a secured
credit card. Meaning you will put a predetermined sum of money on
deposit with the lender. That amount is what secures the loaned amount
and will become your credit limit.
If before your bankruptcy you had a long credit history of good credit the lender extending new credit to you may not require the security deposit. They may instead issue you a credit card with a small balance to work with. After handling that account properly, in time you may ask for an increase in credit. (This usually results in a hard inquiry).
One of the other rules of good credit is not having too many inquiries on your report. For this reason you should only acquire one card at a time with several months of establishing your credit with that company. This is why many say that credit repair takes time.
You do not want to be applying for every card that comes your way or application that is mailed to you. Selection is required. There will be a hard inquiry on your report for each application. You want to select a card that there is a high probability that you will be accepted. This makes the hard inquiry not a wasted effort as it will later result in good credit.
The main goal in credit repair after bankruptcy is to keep your payments in pristine condition. Adding good credit a bit at a time, slowly, till the 2 year period after the bankruptcy discharge. You will then have a 2 year history away from the derogatory information. Many times that is the time period that most lenders use to make a decision about lending to you.
Some lenders will still factor the bankruptcy in but the further away it gets from the present lending decision the less it will be looked at especially if your credit after the occurrence is kept in an excellent standing.