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Restoring credit after a Chapter 7 bankruptcy filing

There are many reasons why a person in Louisville might file for Chapter 7 bankruptcy, ranging from credit card debt to medical debt to an underwater mortgage. However, contrary to popular belief, filing for Chapter 7 bankruptcy will not ruin one's credit forever.

While it is true that a bankruptcy filing will show up on one's credit report for a number of years, the impact of the bankruptcy will go down as time marches on. Moreover, a person can take measures to improve their credit in the meantime.

One type of credit to pursue post-bankruptcy is a secured loan from a bank or credit union. A secured loan is usually based on a deposit one has already made. The deposit cannot be accessed while the debtor is still making payments on the secured loan.

A secured loan can also be funded without an upfront payment, but the loan funds will be put in a savings account and will be made accessible only once the loan is paid off. In return for a secured loan, the bank or credit union will send a positive report to credit bureaus about the debtor's payment history.

Similarly, a person can apply for a secured credit card after a personal bankruptcy filing. This type of credit card is buttressed with a deposit, and the amount of credit available is limited to that deposit. Although there can be a high interest rate and annual fees associated with a secured credit card, this type of credit card is meant more to fix one's credit score moving forward into the future, rather than being used on a long-term basis.

Once a person does secure one of these types of credit post-bankruptcy, it is important to make all payments on time and in full. If possible, pay more than the minimum amount. A person should also not let balances get so high that one cannot financially cope with them. However, by being vigilant and responsible with one's new source of credit, it can help rebuild credit in the end.

Source: NerdWallet, "How to Rebuild Credit After Bankruptcy," Bev O'Shea, June 20, 2016

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