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Deciding if you should file for bankruptcy is challenging and considers many factors. Credit problems, divorce, extended unemployment, and other situations can make it difficult to manage your finances, and bankruptcy becomes the only solution. When you file for bankruptcy, it will stay on your account for seven to ten years. You can, however, rebuild your credit after bankruptcy.
Highlights & Key Takeaways
A Chapter 7 bankruptcy that gets rid of your unsecured debt such as credit cards, personal loans, and medical bills, may stay on credit reports for ten years from the filing date.
A Chapter 13 bankruptcy that allows you to catch up on your secured debts (home, car, etc.) remains on your credit report for about for seven years from the filing date.
Becoming an authorized user on a family member’s credit card, getting a secured credit card, or getting a credit builder loan are effective strategies to help you rebuild your credit after bankruptcy.
With bankruptcy often comes feelings of stress, anxiety, and even depression. Keep your head up and know that with smart financial decisions moving forward, a brighter future often awaits.
8 Ways to Rebuild Credit After Bankruptcy
Deciding to file for bankruptcy wasn’t likely an easy decision. The legal process can be quite consuming, and then there is that hit to your credit report that can last anywhere from seven to ten years. Thankfully, the negative impact of bankruptcy lessens over time, and there are things you can do to start repairing your credit right away.
1. Stay on top of your credit report
Ideal for all borrowers. Checking your credit report once a year helps you ensure lenders analyze your borrowing behavior accurately.
Ease of Implementation: High. Getting a copy of your credit report can take up to 15 days after you file the request. Reviewing your credit report usually takes one hour or less, depending on how much information you need to review.
Timeframe for results: If you find an error on your credit report and dispute it successfully, your score can change as quickly as the next day. But remember that your bankruptcy will remain on your account for seven to ten years and can impact your score by as much as 200 points.
Risk: Low. Your credit will not be negatively impacted if you check your credit score or report.
Sustainability: Checking your credit report is a long-term strategy as you should check it at least once per year.
FinImpact Score: 3
Pros
You will better understand your current credit position
You can detect any inaccurate or incomplete information and file a dispute to get your credit report updated
You will be more aware of what lenders see when they conduct a credit inquiry Regularly checking your credit reports can help you be more aware of what lenders may see
Cons
None - your credit score will not be impacted if your check your credit score or report
Though your bankruptcy will remain on the report for some time, you must get in the habit of checking it regularly. Credit reports can still contain errors unrelated to your bankruptcy. Typical errors found on a credit report include:
Incorrect accounts
Account reporting mistakes such as inaccurate balances, missed payment dates, and inaccurate dates the account was opened or closed
Inaccurate personal information such as the wrong name, wrong birthdate, or an incorrect address
Mistakenly reporting you as deceased
Mistakenly reporting you as being on the Department of the Treasury’s Office of Foreign Asset Compliance List of Specially Designated Nationals, referred to as the terrorist watch list, theOFAC List, or the OFAC/SDN List.
If you find an error, you should dispute it with the applicable credit bureau (Experian, Equifax, or TransUnion). Each of the bureaus has an easy-to-follow process for filing credit report disputes.
2. Check your credit score often
Ideal for all borrowers. Checking your credit score periodically helps you ensure lenders analyze your borrowing behavior accurately.
Ease of Implementation: High. Many banks and creditors offer free access to your credit score. You can also sign up for a credit monitoring service through one of the bureaus, Experian, Equifax, or TransUnion.
Timeframe for results: Your score is not penalized for checking it regularly. Remember that your credit score updates every 30 to 45 days, so it might be a few weeks before you see a change.
Cost: Free. You can access your credit report annually via annualcreditreport.com, which provides access to your score. You may also access your score for free through your bank or one of the previously mentioned monitoring services.
Risk: Low. Your credit will not be negatively impacted if you check your credit score or report.
Sustainability: Checking your credit score is a habit that all borrowers should get into.
FinImpact Score: 3
Pros
Keep track of important changes in your credit profile
See how your financial behaviors impact your score
Ensure your bankruptcy rolls off your score (and credit report) after the applicable seven to ten years
Cons
None - checking your credit score through a free service doesn’t hurt your credit
Keeping an eye on your credit score is almost as important as monitoring your credit report each year. But, regarding your credit score, you may be able to access it as often as once a month or more. Many banks and creditors now offer free access to your credit score as one of their perks. So, get in the habit of checking periodically to see how your score is trending.
Filing for bankruptcy has a pretty big impact on your credit, so by checking your credit score, you can watch it slowly rebuild as you develop better financial habits. Check out this table which shows how much bankruptcy can impact you, based on the score band you were in when filing.
Score
Average Drop in Credit Score
Excellent (850 to 800)
200 points
Very Good (740 to 799)
200 points
Good (670 to 739)
200 points
Fair (580 to 669)
130 to 150 points
Poor (300 to 579)
130 to 150 points
Further, take a look at pros and cons to checking your credit score regularly.
3. Practice responsible credit habits
Ideal for all borrowers. Practicing responsible credit habits is a must - always.
Ease of Implementation: High. Once you have established good habits, they are easy to continue as long as you remain dedicated and focused on protecting your credit in the future.
Timeframe for results: The more payments you make on time and the better you manage your utilization, your score will improve. Just remember that improving credit takes time.
Cost: Free. There is no cost to making good financial decisions, but bad ones can cost you far more than a poor credit score.
Risk: Low. There is no risk in making good financial choices.
Sustainability: Easy - once you’re in the habit, it is easy to continue making good choices.
FinImpact Score: 3
Pros
Good payment behavior represents 35% of your credit score
Keeping your credit balances under 30% accounts for 30% of your credit score
Learning how to manage your finances now will help you later
Cons
None - there is never any harm in practicing good financial habits
Your credit score will inevitably improve as more time passes since your bankruptcy. However, don’t assume that letting time pass is enough. Healthy financial habits are necessary to rebuild your credit after bankruptcy. Here are some steps to take:
Make your payments on time every month
Reduce your credit card use should you still have a credit card (or even a secured credit card)
Keep your credit card balances low - utilization impacts 30% of your credit score
Start putting money into an emergency savings fund so that you have a “cushion” should you run into future financial challenges
4. Take credit for your non-credit payments
Ideal for: Those making on-time cell phone, utility, and/or service payments for several months to several years.
Ease of Implementation: Easy. It only takes about five minus to sign up for Experian Boost.
Timeframe for results: You may see an instant increase in your FICO score from Experian.
Cost: Signing up for Experian Boost is free.
Risk: Low.
Sustainability: Easy - once you’re signed up, you can set it and forget it unless you sign on with a new provider or carrier
FinImpact Score: 3
Pros
Experian Boost is free
Years of on-time payments could help you increase your score.
You may see an increase in your FICO score almost instantly
Even if it doesn't help you, it won't hurt you
The tool can give you extra credit history if you haven't had enough to be assigned a score.
Cons
Your credit score may not improve as some payments are ineligible, and not all scores are affected by Experian Boost
You won't see a difference in your TransUnion or Equifax scores (it only works with your Experian score).
You have to share personal data to create your account and search for qualifying payments
Even if you have filed for bankruptcy, you may be paying non-credit-related expenses monthly. For example, you may pay for your mobile device, various streaming services, water or electricity bills, etc. Programs like Experian Boost let you get credit for paying monthly utility, cell phone, and streaming service bills on time. You can even get credit for streaming payments on Netflix, HBO, Hulu, Disney+, and Starz.
5. Get a secured credit card
Ideal for: Those who have never applied for credit and need to start from scratch
Ease of Implementation: Easy. It doesn’t take all that long to apply. Just watch your spending and pay your bills on time each month.
Timeframe for results: You can build credit with your secured credit card in as little as one or two months. Remember that building a good or excellent credit score will take months or even years.
Cost: You will be responsible for paying the upfront deposit on your secured credit card.
Risk: Medium as long as you practice good financial decisions.
Sustainability: High. Paying your bills on time and managing your utilization is critical to success.
FinImpact Score: 3
Pros
Effective in helping you build credit
Great way to work your way up to an unsecured credit card
Use on-time payments to build your credit score
Cons
You will need to pay a refundable security deposit
High fees and interest rates
Low credit limits
Upfront cash is required
Getting a secured credit card is a great way for those who have filed for bankruptcy to build better financial habits, such as managing credit card utilization, paying bills on time, and improving your credit. Secured cards work very similarly to traditional credit cards, except you pay a cash deposit upfront to guarantee your credit line. The more you make on-time payments, your credit score will improve. And over time, you may again be eligible for a traditional credit card. This process takes about six to 18 months.
6. Try a credit-builder loan
Ideal for: Those with no credit, poor credit, or those trying to build or improve their credit history.
Ease of Implementation: Easy. It doesn’t take all that long to apply for a credit-builder loan. Once you have your loan, ensure you pay on time every month.
Timeframe for results: You can see your score start to improve, even if just a little bit, in as soon as 30 to 45 days after the credit bureau reports on your payment activity.
Cost: You will be responsible for paying the upfront deposit to secure your credit builder loan.
Risk: Low, since you borrow from yourself through a creditor.
Sustainability: High. Paying your bills on time is necessary to help your score.
FinImpact Score: 3
Pros
Qualification requirements are less stringent
Paying your bill on time helps you build your credit score
See a 60-point increase in your FICO score after the loan is paid off
After your loan is paid off, you can withdraw the funds you deposited to secure the loan
Cons
If you have a history of bounced checks, you might not be able to qualify
Late payments can lead to interest charges
Late payments may also harm your credit score
Not a good option if you have existing debt
Credit-builder loans stand apart from traditional loans because they specifically help you build your credit. These loans are for a small amount, usually under $5,000, with a short repayment period of six to 24 months. The money you borrow is deposited in an account while you make payments. You get the money back after successfully making all of the payments with interest. In essence, with a credit-builder loan, you are borrowing from yourself for the purpose of building credit.
Paying off a credit builder loan can positively impact your credit score by about 35%, provided you make your payments on time.
7. Ask a trusted family member to add you as an authorized signer on their credit card
Ideal for: Those not ready to apply for a credit card on your own or are unable to provide proof of income
Ease of Implementation: Easy. Have your friend or family member call their credit card bank to discuss options.
Timeframe for results: Six to 12 months for these activities to start driving your credit score upwards.
Cost: You will be responsible for paying for your share of purchases made on the card and for fulfilling your portion of the minimum monthly payment.
Risk: Low, provided you work with a trusted and financially-responsible family member or friend.
Sustainability: High, especially if you can trust them to pay their bill on time and keep their utilization under 30%.
FinImpact Score: 4
Pros
Great way to establish a credit history
Allows you to learn to manage your credit
You don’t have to get approved for your own credit card
Boosts any rewards or perks currently associated with the card
There is usually no fee associated with adding yourself to a card
Low effort
You don’t need to provide proof of income
Allows you to establish credit with no credit history
Cons
Assumes that the primary cardholder is responsible for their payment history and utilization
The primary cardholder will need to take full responsibility
Credit mishaps such as a missed payment or failure to pay the balance due can hurt your credit score, and the cardholder’s too
You won’t earn your own rewards or perks for using the card
After you have filed for bankruptcy; it can be hard to get a new traditional credit card. Yet, successful management of credit cards is a great way to improve your credit score. With this strategy, you can leverage their habits while slowly improving your credit. However, before you do this, ensure you have the means to fulfill your end of the financial arrangement and that the primary user is financially responsible.
8. Get a co-signer for a personal loan for poor credit
Ideal for: Those recovering from bankruptcy that do not yet look favorable to a prospective lender
Ease of Implementation: Medium. Applying for a loan is the easy part.
Timeframe for results: You can start seeing the benefits of your positive payment history on your personal loan in just a few months.
Cost: You will be responsible for making your monthly payments and fulfilling your loan obligations.
Risk: Medium, as you may strain your relationship with your co-signer.
Sustainability: Medium, once you pay off your loan, your credit score may have improved enough for you to pursue a personal loan for fair credit without a co-signer
FinImpact Score: 4
Pros
Diversity of accounts which represents about 10% of your credit score
Ability to develop a positive payment history, which represents 35% of your score
Cons
Increased responsibility - not only are you trying to improve your score, but you need to ensure you do not negatively impact your co-signers score
Potentially strained relationship with your co-signer
After you have filed for bankruptcy, many lenders will view you as a credit risk and will be hesitant to approve your loan. However, you may qualify for a personal loan for poor credit, especially if you ask a co-signer to sign the loan. A co-signer helps you improve your credit score. Remember, too, that payment history accounts for 35% of your credit score. Staying current on your personal loan payments could help boost your score, provided you can manage your other debts responsibly.
How Long Does it Take to Rebuild Credit After Bankruptcy
The length of time it takes to rebuild your credit after bankruptcy depends on a variety of factors, including the type of bankruptcy you filed, the amount of debt you had, and how quickly you start rebuilding your credit. The most common types of bankruptcy are:
Chapter 7 - This type of bankruptcy gets rid of your unsecured debt such as credit cards, personal loans, and medical bills, and may stay on credit reports for ten years from the filing date
Chapter 9 - This bankruptcy enables financially distressed municipalities to reorganize their debts and seek protection from their creditors. This type of bankruptcy does not impact a personal credit score.
Chapter 11 - This form of bankruptcy involves reorganizing a debtor's business affairs, debts, and assets. It is also referred to as a "reorganization" bankruptcy. A Chapter 11 bankruptcy allows a company to stay in business and restructure its obligations and does not impact a personal credit score.
Chapter 12 - This form of bankruptcy specifically applies to farms and fisheries and does not impact a personal credit score.
Chapter 13 - This type of bankruptcy allows you to catch up on your secured debts (home, car, etc.) and remains on your credit report for about seven years from the filing date.
As you can see, only chapter 7 and chapter 13 bankruptcy will impact a personal credit score. And it can take several months to several years to rebuild your credit after bankruptcy, especially while the bankruptcy is still listed on your credit report.
How Long Does Bankruptcy Stay on Your Credit Report?
A Chapter 7 bankruptcy removes your unsecured debt, such as credit cards, personal loans, and medical bills, and may stay on credit reports for ten years from the filing date. A Chapter 13 bankruptcy, on the other hand, allows you to catch up on your secured debts (home, car, etc.) and remains on your credit report for about seven years from the filing date.
Up to seven years from the original delinquency date
Collection or charged-off accounts
Seven years from the date of your first missed payment that led to the collection or charge-off status
Bankruptcy public records
Seven to ten years
Repossessions
Up to seven years from the date of the first missed payment that led to the negative status
Conversely, positive behaviors can stay on your credit report for some time too.
Type of positive credit activity
Length of time on credit report
Active accounts paid as agreed
As long as the account is open and the lender is reporting it
Closed accounts paid as agreed
Up to 10 years from the date the lender reported it to the credit bureau
Types of Credit You Can Get After Bankruptcy
If you have filed for bankruptcy, getting credit may be harder for quite awhile to come. This is because lenders and creditors will view you as less creditworthy. However, this doesn’t mean you can’t get credit. You can get a secured credit card or credit builder loan to help you build credit, but you can also pursue certain loan options for poor credit.
Auto loans are available for those with poor credit
There are auto loans available for borrowers who have poor credit scores. You may need to pay a larger down payment and will likely be subject to a higher interest rate. For example, an auto loan for a borrower with a credit score between 506 and 600 may be an interest rate of approximately 16.78%.
Getting a mortgage after bankruptcy may be more challenging
However, you may run into some further issues if you wish to buy a house. To get a conventional mortgage that meets Fannie Mae's and Freddie Mac's requirements, you’ll likely need to wait four years from the date of your bankruptcy discharge or dismissal before you can get a mortgage if your bankruptcy was due to financial mismanagement.
You may have better luck with an FHA-insured mortgage. The U.S. Department of Housing and Urban Development (HUD) requires borrowers to wait two years after the discharge of their chapter 7 bankruptcy before qualifying for a Federal Housing Administration (FHA) mortgage. You may be able to shorten the waiting period to one year if you can document extenuating circumstances.
A small business loan could still be in the cards after bankruptcy
Finally, you may wonder if you can get a small business loan after filing for bankruptcy. To seek a small business loan before bankruptcy rolls off your credit report, follow these steps.
Wait until your bankruptcy is discharged
Keep your debt to a minimum
Do your research - you may have to look at online lenders instead of traditional lenders like banks or credit unions
Create a business plan that you can submit with your loan application materials
Write a bankruptcy statement that outlines why you filed for bankruptcy
Seek a co-signer - this should be someone you trust who has the means to repay your business loan if you are unable to
Rebuilding Your Finances after Bankruptcy: Tips for Moving Forward
After you file for bankruptcy, you must start taking the steps to improve your credit. Some of the best ways to do this are:
Prepare a financial budget - apply the 50/30/20 rule and divide your income into three categories, spending 50% on needs, 30% on wants and 20% on savings
Set aside money into an emergency fund so that you have a cushion should something go wrong
Live within your means
Work with a financial advisor or credit counselor - credit counseling can assist you with getting your finances in order. They can advise you on your debts, help you develop a budget, and provide money management workshops to set you on a path toward financial success.
Use financial apps that can help with budgeting - free apps like Mint, GoodBudget, and Personal Capital are free and are a great place to get started
Stay positive and be patient - with sound financial decisions, your credit score will start to improve
The Importance of Patience and Persistence After Bankruptcy
One thing that we have said time and again is that it takes patience and persistence to rebuild your credit after bankruptcy. But this doesn’t mean it is impossible. During that time of rebuilding, keep your head up and stay focused on the following:
Keep steady employment - even though your employment status and income aren’t part of your credit score calculation, it can help your credit report and ability to get credit in the future. Creditors like to see job stability and will also look at your debt-to-income ratio when considering you for a loan or credit card.
Pay your bills on time - A good payment history represents 35% of your credit score and helps demonstrate your creditworthiness.
Rebuild your credit - Get added as an authorized user to someone’s credit card, or consider a credit builder loan or secured credit card. These options help get you back in the game and show future lenders that you are a responsible borrower despite your past setbacks.
Stay positive - Stress and anxiety are common repercussions associated with bankruptcy. It can even lead to feelings of failure and depression. But for many, bankruptcy is a wise decision. Though rebuilding can take some time, bankruptcy can keep a bad situation from worsening.
Strategies for Paying Off Debts
There are three tried-and-true and popular approaches to paying off your debt. These are the snowball and avalanche methods plus the debt consolidation loan approach. Paying off your debt is a great way to help build your creditworthiness in the eyes of lenders and creditors. And it can lessen stress and anxiety as you worry about managing your bills.
Snowball approach - The snowball approach has you focus your payoff efforts on the card with the smallest balance first. Once that card has been paid in full, stop using it but keep it open. Then, move on to the next card with the smallest balance. Rinse and repeat. This approach gives you a bit of near-term gratification and provides the psychological boost many require to stick to their debt repayment plan.
Avalanche approach - The avalanche approach suggests you start your debt payoff efforts by focusing on the card with the highest interest rate. This method can take a bit longer but could save you more money as you pay less interest over time.
Debt consolidation loan - Many borrowers with multiple monthly payments and an overwhelmingly high debt turn to debt consolidation loans. These loans pay off your credit cards and provide you with a lower interest rate and lower combined minimum monthly payment. The risk here is that you could start using those credit cards and get into financial trouble again. If you go this route, avoid the temptation to rack up debt on your newly paid-off cards.
How to Negotiate with Creditors
Negotiating with your creditors can effectively help with debt repayment and credit rebuilding. But, borrowers should think carefully before taking this path. Do some quick napkin math to add up your debts and see how long it would take to pay them off. Review your credit card and loan statements, too. These documents must provide you with payment information, including the following:
New balance
Minimum payment due
Payment due date
How long it would take to pay off the debt if you only pay your minimum payments
How much you will pay (with interest) should you only pay your minimum monthly payments
Then, use this information to see what your situation looks like. If it looks too much to handle, prepare for a call with your creditors to negotiate better terms. During your call, do the following:
Inform the credit representative with a condensed version of your financial situation
Ask for options to help you repay your debts - they may be willing to lower your interest rate or lessen your required minimum monthly payment
Ask questions for anything you do not understand
Take notes and get a clear understanding of any next steps
Get any agreements in writing (ask them to follow-up with an email or letter by mail)
Stay friendly
Borrowers who keep a positive attitude and are polite during their calls with creditors tend to get the best results.
Final Word
As you can see, rebuilding your credit after bankruptcy is possible. However, it takes some diligence. Be prepared for your credit report to indicate your bankruptcy for seven to ten years, depending on the type of bankruptcy you filed. While you wait for it to fall off your credit report, practice good financial habits and try one of the credit-building strategies we suggested.
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Ann have been a marketer and a content writer for over 20 years. She have worked for financial institutions such as FICO, Experian, and BlueChip Financial as a director of content and brand marketing.
