Filing personal bankruptcy and having your debts discharge can eliminate overwhelming balances and give you the opportunity to make a fresh start credit-wise. But just because you get rid of balances doesn't mean you should stop worrying about your credit. Ongoing credit monitoring is essential to improving and keeping your credit in good shape.
What is Bankruptcy Discharge?
Filing bankruptcy doesn't guaranteed the discharge of your debt. Discharging refers to no longer being liable for these balances. A judge hears your case and considers your reason for seeking a bankruptcy. Creditors can dispute the bankruptcy. But if your debts outweigh your assets and you don't have the ability to repay, a judge may grant a bankruptcy discharge and possibly erase your debts under a Chapter 7. A Chapter 13 may eliminate debts as well, but also give you the opportunity to repay some or all of your debts under a new repayment plan. A Chapter 11 bankruptcy primarily helps businesses that can no longer repay creditors, and allows these businesses to reorganize and pay back creditors over time.
Check Report for Accuracy
Bankruptcies appear on your credit report, and every credit account included in the bankruptcy will have a notation on your report indicating that the debt was discharged in your filing. It's imperative to check your credit report a few months after a discharge to ensure that all accounts are updated. Annual Credit Report gives free reports from each of the three bureaus each year. Get your free copies and then check each item. The phrase, "included in bankruptcy" and a zero balance should follow each credit account discharged under the bankruptcy. If this phrase doesn't appear, the creditor or lender may seek payment at a later date and consider the account delinquent. Contact the creditor to have your report updated.
Establishing New Credit
Getting new credit cards or acquiring a small loan after a personal bankruptcy discharge helps rebuild your credit, which is key in reversing the damaging effects of a bankruptcy. Chapter 7 and 11 bankruptcies stay on your report for 10 years. Chapter 13 stays on the report for seven years and can significantly drop your score. Scores can improve once the bankruptcy reaches the end point. But in the meantime, take steps to improve your score with timely bill payments and keeping consumer debt to a low.
Closely Monitoring Credit History
Along with acquiring new accounts to rebuild credit after bankruptcy, keep a close eye on your credit report following a bankruptcy. Even if all creditors update your reports accurately after the bankruptcy, other issues such as identity theft and new reporting errors can follow and lower your score even further. Develop a habit of getting your report each year; notify creditors immediately if an unfamiliar account appears on your report or if you suspect someone stole your personal information and opened accounts in your name.
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