1. Home
2. Bankruptcy Articles
3. How long does it take to rebuild your credit after filing for bankruptcy?

FAQ'S

Wednesday, April 28th, 2010

by Theodore Sliwinski, Esq.

Many web surfers are living through very tough financial times and they have no choice but to file for bankruptcy.  Bankruptcy is embarassing but so is losing your girlfriend to another guy, so is getting fat, so is saying something stupid to your boss. Get the point, you have to deal with embarassment sometime in your life.  A chapter 13 will remain on a person’s credit report for 7 years. However, the time the clock doesn’t start ticking until the chapter 13 repayment plan has been fully completed. Meanwhile, a chapter 7 filing will stay on your credit report for 10 years.

By far one of the most frequent questions that I receive at any initial bankruptcy consultation is how long does it will take for person to rebuild his credit after  filing for bankruptcy?  The answer to this question depends on many factors. The first major factor is what is the income of the debtor. If a debtor earns a nice salary then it will be much easier for him to rebuild his credit. The second major factor is how does the debtor pay his bills after he has filed. To help improve your credit score it is always advisable for a person to obtain a secured card and to pay it in full each month. You will have to deposit cash up to the amount of your credit line and you will have to pay a yearly fee (usually about $30), but it will appear on credit reports just like any card. If you have a secured credit card this will show to the credit world that you can responsibly use credit cards. Thereafter, your credit score should improve dramactically.

In about a year or two you will probably be able to apply for non-secured credit cards as your credit score inches back up. Typically, if you use this proven method then your credit score will go back to 650 to 680 within about three years. As the negative history (past late payments and written off accounts) starts to drop off completely your credit score will rebound even more.

The credit bureaus primarily review your last three to five years of credit history. Therefore, you can obtain a decent credit score after three years as long as you show to potential lenders that you can be an on time payer. It is important that you check your credit report on an annual basis to check for any errors. After you file for bankruptcy you should also make certain that all of the debts that were listed on your bankruptcy are listed as so on your credit report.  Unfortuantely, many creditors still tend to continue to report bad debt even if it was discharged in a bankruptcy. In summary, if your credit card debt was wiped off then you must take steps to have these debts marked as discharged on your credit report.  Most marks on your credit report for bad credit card debt will be removed from your credit report in 7 years.

If you have a foreclosure on your credit report then it will be much harder to obtain a new mortgage. A foreclosure mark on your credit report generally will be removed in 7 years.  If you should decide that you want to purchase a new home before the foreclosure mark is removed, then you should talk with mortgage broker(s) before you even start to look for a home. A savvy mortgage broker can help you find a deal that you can live with. Generally, the mortgage rates after a bankruptcy are around 8% to 10%. However, if you have paid your mortgage payment on time, then you should be able to refinance for a lower rate in two years. 

Finally, it may also be somewhat of a challence to obtain a new car loan. However, this still is not an impossible task. Typically, the interest rates for car loans after a bankruptcy run from 10% to 18%. The interests rates could be lower if the borrower finds a co-signer. The downside of having such high interests rates is that it generally takes several more years to pay off the car loan.