Filing for bankruptcy takes an immediate toll on your credit score, but it's also an opportunity for a fresh financial start. You can start rebuilding immediately after a Chapter 7 discharge or, if you file for Chapter 13, during the repayment plan. However, the rebuilding process requires careful management so that you don’t fall into the same pattern of debt that led to bankruptcy in the first place. 

Bear in mind that the bankruptcy will stay on your record for several years. A Chapter 7 will remain on your credit report for 10 years from the filing date, and a Chapter 13 bankruptcy will remain for seven years. The silver lining is that the report also shows creditors which debts have been discharged.

Here are some positive actions you can take to start rebuilding your credit after bankruptcy:

1. Establish a budget and stick to it — Set realistic limits on your cash outlays, avoiding impulsive spending. If you obtain credit, use it only for what you can afford to pay back in full each month. This can help you avoid falling into debt again.

2. Focus on making on-time payments — This is the single most important factor in rebuilding your credit. Make sure you pay all your bills on time every month, including utilities, rent and any remaining loans. Even small delinquencies can hurt your credit score. 

3. Open a secured credit card or revolving charge account — Secured credit cards and charge accounts require a security deposit, and your credit limit will typically be the amount of that deposit. Use these responsibly, making on-time payments and keeping your credit utilization low (below 30 percent). Over time, this will establish a positive credit history.

4. Apply for a credit-builder loan — These loans from banks and credit unions work like regular loans, but the funds are held in a deposit account until you've completed the payments. This builds both savings and credit history with timely payments.

5. Become an authorized user on someone’s account — Ask a relative or friend with good credit to add you as an authorized user on their credit card. This allows you to benefit from their positive credit history without being solely responsible for the debt.

6. Apply for loans with a cosigner — Asking a family member or trusted friend to cosign a loan is another way of reestablishing credit as long as you make timely payments. Be mindful, however, that any late payments or defaults will cause your cosigner’s credit score to suffer.

7. Review your credit report and dispute errors — Review your credit reports regularly and dispute any errors you find. Incorrect information can negatively impact your score. You can get free credit reports weekly from AnnualCreditReport.com.

8. Be patient and diligent — Rebuilding credit after bankruptcy takes time and consistent effort. Don't get discouraged if your score doesn't improve overnight. Over time, it will.

The Law Offices of James C. Zimmermann provides legal assistance in all bankruptcy and debt relief matters, including counseling on credit restoration. We have offices in Hackensack, Vernon, Wayne, Pompton Lakes and Nutley, New Jersey. Call 973-764-1633 or contact us online for a free consultation.