Whenever there is a bankruptcy involved it is bad for your credit.
The truth about the reporting of account information during and after bankruptcy is the way certain information gets reported. That information makes a major difference in the effect on the credit scores. For instance, if an account is in the bankruptcy and reports as past due, this has a significant negative impact on the score. The same account, reports as in bankruptcy and $0.00 past due will create a higher credit score. A past due amount will create a major difference in the score.
Increase your credit score after bankruptcy
There is no legal way to erase a bankruptcy. However, there are certain measures and strategies to increase your credit scores. First, you will need to direct your efforts to correcting common reporting errors that negatively affect your scores.
- Make sure every account that was listed in your bankruptcy is not reporting as past due. The bankruptcy law protects against this claim. This applies to both situations, after and during bankruptcy.
- Also make certain that all creditors that were listed in your bankruptcy, report your account as a zero balance once your bankruptcy is discharged. Any collections on your credit bureau should be compared to the accounts in bankruptcy, if the collections are listed in the bankruptcy they need to be reported in the same manner.
All accounts in your bankruptcy should be reporting as a zero balance and zero past due with the discharge of your bankruptcy. An exception to this rule is a mortgage account. When most individuals, who owe a mortgage, file a chapter 13 bankruptcy, the mortgage is included, the past due amount (also known as the arrearage) is included along with the current balance. The bankruptcy trustee will pay the arrearage amount from the monthly payments they receive.
Once the bankruptcy is discharged, then the arrearage debt is paid and the balance of the mortgage can continue to be paid as agreed, and will not be reported as a zero balance. This will usually be the case as long as the payment plan the trustee had agreed to have been paid as ordered. Normally, once the bankruptcy is discharged the only debt that should remain will be the mortgage and its balance.
Transferred accounts
Another error to be aware of while evaluating your credit is accounts that have been transferred. While in bankruptcy some companies will sell or transfer an account. If this happens make sure that account that transferred reports as zero past due zero balance and also this company should not report as in bankruptcy since it has sold its debt. The debt and the owner of the debt is in the bankruptcy. If the account is sold the new owner of the debt will now have to respond to the court and its orders. The seller of the debt will no longer be responding to the court and its order, therefore, the reporting then should be status as “sold or transferred” and zero past due and zero balance it should not be stated as bankruptcy.
Re-establishing your credit
Correcting credit reporting errors will be one of the two steps necessary in the repair process. The second step is to start re-establishing new credit. Since a bankruptcy will excuse your debt to the unsecured credit grantors, the likeliness of those companies allowing you to retain a credit line and credit with them will usually be denied.
Establishing a new payment history will be needed to start increasing your credit scores and demonstrating the ability to manage debt. It’s not as difficult as one might think. It will take sometime though, just keep a determined attitude and remember what forced you to file bankruptcy. If bankruptcy was a result of a misfortune, then try to plan for a “rainy day”. If bankruptcy was a result of over extending your financial ability, then be aware of your financial limitations.
New sources of credit will need to be established. Please refer to the re-establish credit page.