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Bankruptcy and Rebuilding Credit

Your bankruptcy is over and now you want to start rebuilding your credit. What to do.

One of the implications of getting a discharge in bankruptcy is that all of your unsecured debt is gone. Therefore, your debt to income ratio is dramatically reduced. In the eyes of a potential lender, you may actually be a better risk than you were before the bankruptcy.

After filing a chapter 7 bankruptcy and getting a discharge, potential creditors know three things about you.

1) You cannot discharge any new debt for 8 years.

2) New creditors would have this 8 years to collect on their debt. And
3) New creditors would not have to compete against any of the debt included in the bankruptcy.

Couple these factors with the fact that the recidivism rate for bankruptcy is fairly low and you become a desired customer for most potential creditors. The first thing to remember is to continue to make timely payments on the debt that may have flowed through the bankruptcy such as car payments, house payments, student loans and living expenses.

Keep an eye on your credit scores and reports. Remember that after bankruptcy, the only acceptable notation on a credit report for a discharged debt is a) zero balance or b) discharged in bankruptcy. You should get a copy of your credit reports from Equifax, Experian and Trans Union and examine them for errors, missing or inaccurate information.

Often times after filing bankruptcy, credit card applications are sent to newly discharged debtors. Again, this is done because creditors are aware of the above three factors. If yo receive such solicitations, be careful to check for the interest rate and fees required. If you do not get credit card solicitations, you may want to apply for department store cards or even a secured credit card as these are usually fairly easy to obtain.

Once a person has established a regular pattern of making payments on time, then the issuer will normally increase the credit limits. Once that happens, then qualifying for unsecured credit usually becomes much easier.