It's a myth that a bankruptcy is going to permanently decimate your credit score.
The truth is, it will take some time, planning and effort to rebuild it, but our Birmingham bankruptcy lawyers know the process is not likely to hinder you probably near as much as you might fear.
First, you must take into account how a Chapter 7 bankruptcy actually works. That is, most of your key debts will be erased. Once the bankruptcy is discharged (and really as soon as you file), you are no longer responsible for continuing payment. That alone can make many of your financial goals much more attainable.
Secondly, if you plan properly with the help of your attorney, you should be able to avoid any serious consequences that might arise as a result of your credit score taking a temporary dive. And in most cases, a client's score is already poor due to missed payments, maxed out credit cards and collection action.
Beyond that, what's important to keep in mind is that because of the recession, a great many people found themselves struggling financially and record numbers filed for bankruptcy. The end result of that was two things:
1. The stigma that is so often associated with bankruptcy has largely been eliminated. The fact is, almost everyone knows someone who has been affected by the economy.
2. Banks have been loosening their grip when it comes to standards on lending for everything from credit lines to mortgages. If they didn't, they would be excluding a wide swath of people who are otherwise responsible consumers.
So a recovery is truly not as bad - or far off - as you might think.
That said, there are active steps you can take after your bankruptcy is discharged to help expedite the credit score recovery process.
Consider making the following part of your regular routine:
1. Once every month, set a date night with your credit. That is, take a few minutes to review your current credit scores. Look over the progress you've made. See if there were any errors you could have avoided. Set some goals for the upcoming month. This is sometimes a painful process for people to confront every month, but being honest and knowledgeable about your situation will help to set you on the right foot. And it can be pure joy when you are making a debt-free fresh start!
2. When you're reviewing your credit, don't overlook seemingly minor errors. For example, if your name is misspelled or you are somehow connected to an address at which you never lived, that could be a sign that your score has been mixed with someone else's. This happens more than you think. Checking it regularly can help you avoid major problems later.
3. Know that there are limits to how long certain negative information can remain on your credit report, per the Fair Credit Reporting Act. For example, late payments can remain on your history for seven years. Same with charge-offs, judgments and tax liens. Those things should be purged automatically after the cut-off date. Check to make sure.
4. Use your credit card again. This may seem counterintuitive, but one of the best ways to counter bad credit is by using credit cards. You can begin racking up points by making good on the credit you're taking out now. Bear in mind you don't want to max out that card, or your score is going to drop again. As a general rule, keep your balance at no more than 10 to 25 percent of the total available credit.
5. If there are any mistakes, do not hesitate to have them corrected immediately.
6. Pay your bills on time. This truly can't be stressed enough. Even a single late payment can result in a big dip in your score. If it helps, consider having your bills paid through an automatic bill pay service, to help avoid any unintentional errors.