Life After Bankruptcy

Filing for Bankruptcy Affects Your Credit in Many Ways

The major negative associated with filing for bankruptcy is that it will add damaging information to your credit reports. But let’s be honest, if you are considering bankruptcy, those reports have already been badly damaged by information like late payments and maybe collection accounts, creditor judgments, and the like.

On the flip side of the coin, filing for bankruptcy is the quickest and most efficient way for you to get out of debt and to be in a position where you are able to start saving, which is important if you want to buy a home, purchase a new vehicle, help your children pay for college, or save for your retirement. The more cash you have, the more credit-worthy you are.

More Facts About Bankruptcy and Your Credit

Here are some other facts to consider about bankruptcy and your credit:

  • Your bankruptcy will not stay in your credit records forever. Legally, the longest a bankruptcy can be reported is 10 years. However, the more time that passes once your bankruptcy is over, the less important your bankruptcy will be to creditors that are considering giving you credit. This assumes of course, that you’ve done a good job of managing any new credit you may already have been approved for since the bankruptcy ended.
  • You can begin rebuilding your credit as soon as your bankruptcy is over by obtaining small amounts of new credit and managing it responsibly.
  • Although your credit reports will show that you filed bankruptcy, they will also show that you are debt free, a fact that will be attractive to creditors.
  • You can actually end up with a higher credit score after you bankruptcy is over than you had before it began. Prior to filing, your credit score is calculated by comparing your credit history to the credit histories of other people in the general population; but once your bankruptcy is over, your credit score is determined by comparing your credit history to the credit histories of other people who filed bankruptcy. So, if you do a good job of managing your finances after bankruptcy, your credit score will probably rise. However, this fact alone is not a good reason to file for bankruptcy.


Rebuilding your credit after bankruptcy is all about adding positive information to your credit reports over time and demonstrating that you can use credit responsibly. You do that by paying your bills on time and not applying for a lot of credit. Take it slow! If creditors believe that you are completing too many credit applications, they will be reluctant to work with you because they will be afraid that you may develop serious money troubles again.

If you follow my step-by-step credit rebuilding advice you will probably be in a position to get approved for a mortgage within about 2-4 years of completing your bankruptcy, depending on your income and expenses:

  1. Know what your credit reports say about you. Order a free annual copy of your credit reports from each of the three major credit reporting agencies – Equifax, Experian, and TransUnion — by going to or by calling 877-322-8228. These are the ONLY truly free sources for credit reports. Don’t fall for other offers, because they are not truly free.
  2. Resolve problems. Read each of your credit reports carefully (It’s likely that they will not all contain exactly the same information.) looking for errors, missing information and inaccuracies. If you find a problem in one of your reports, correct it by contacting the credit reporting agency that prepared the report. The process for correcting problems will be explained on the report.
  3. Start savings. It’s important that you build up a fund to cover emergencies and unexpected expenses so that you do not need to pay for them with a credit card. Also, you’ll need money in savings if you want to purchase a home. Even if you cannot save a lot each month, saving something is better than saving nothing.
  4. Apply for a Visa or Mastercard. Shop for the card with the best terms of credit., is a good resource for finding the best card for you. Once you are approved for a card, you should either use it every month to make a small purchase or two and then pay off the full amount of your card balance the next month, or you should purchase a more expensive item and pay it off over time. If you choose the latter option, do not use your card again until you have paid the balance in full. Regardless of which option you go with, be sure to make all of your card payments in full and on time.

If you not able to get approved for a regular Visa or MasterCard, apply for a secured card. A secured card looks just like a regular Visa or MasterCard and is accepted pretty much everywhere that a regular card is accepted. The difference is that to use a secured card, you must keep a certain amount of money in a savings account with the bank that issues you the card. The amount usually ranges from a couple hundred dollars to $1,000 and the money serves as your card collateral; typically the credit limit on the secured card will be the same amount as your collateral. Assuming you make all of your secured card payments on time, the card will help you rebuild your credit and you will qualify for a regular card eventually. Again, compare the terms of various secured cards to identify the one with the most attractive terms.