A bankruptcy filing may come with great benefits, the most pivotal being getting out of a financially ruinous situation. However, there may be long-term consequences that you must be mindful of, such as the negative effects it may have on your credit. Despite this, there are steps you can take to rebuild your credit score after filing for bankruptcy in Kentucky. Follow along to find out ways to rebuild your credit and how a proficient Louisville, Kentucky consumer bankruptcy lawyer at Schwartz Bankruptcy Law Center can offer you some level of credit counseling.

How Does Bankruptcy Affect My Credit?

While bankruptcy can be an incredibly beneficial process in alleviating substantial debt, this process is not without its consequences. In exchange for discharging the debt in your name, you’ll find that your credit score will take a significant hit. As such, this can make it incredibly difficult to obtain loans and lines of credit. This is because bankruptcy is a red flag to lenders, as it shows you have been unable to repay loans in the past. 

How Long Will Bankruptcy Remain on My Credit Report?

Chapter 7 bankruptcy proceedings may remain on your credit report for ten years, while your Chapter 13 bankruptcy will remain for seven years.

Though this may seem like a long time to have your credit affected, it’s important to understand that you can begin rebuilding your credit within 2 years of filing. As such, your credit will not be “ruined” by bankruptcy for the entire time it appears on your credit report.

Common Credit Challenges After Bankruptcy

  • Substantial initial drop in credit score (between 130 to 240 points, depending on credit history)
  • Difficulty getting approval for unsecured credit cards
  • High interest rates on lines of credit and loans
  • Limited access to favorable loan terms
  • You may find difficulty in getting approved for a conventional mortgage loan (four years after Chapter 7 and two years after Chapter 13).

How Can I Start Rebuilding My Credit Post-Bankruptcy in KY?

Even though it may take a while to have your bankruptcy proceedings removed from your credit report, you don’t have to wait until it falls off your report to regain control of your finances. There are steps you can take to rebuild your credit straight away. 

Step 1: Regularly Check Your Credit

One of the most important things you can do is get in the habit of checking your credit score. You are offered one free credit report from each of the reporting bureaus annually, meaning you can check your score for free every four months. Ensuring you stay on top of your credit can help ensure that it is accurate. If there are errors, you have the right to dispute these inaccuracies with the agency. 

Step 2: Start Making On-Time Payments

One of the most important factors of your credit score is your payment history, making up 35% of a FICO credit score. This is because it informs creditors of your ability to repay loans on time. As such, continually missing payments can drastically slow the rate at which your credit score will improve.  

Step 3: Utilize Secured Credit Cards or Credit-Builder Loans

  • Secured credit cards can help you quickly rebuild your credit with a lower risk
  • Credit-builder loans can be taken out with the intention of building a positive credit history
  • Try to keep credit utilization under 30%

Step 4: Consider Asking for a Cosigner or to Become an Authorized User

A cosigner can help you access more favorable credit terms. They act as a guarantor in the event you cannot repay the debt. Additionally, becoming an authorized user can help boost your credit without a creditor performing a hard inquiry. 

It is critical for both parties to understand the risk of these options.

Step 5: Build Better Financial Habits

The most important thing you can do after bankruptcy in Louisville is to create and adhere to strong financial habits. You should:

  • Create and maintain a budget to ensure on time payments
  • Build up an emergency fund to avoid taking out lines of credit
  • Consider credit counseling to help build strong habits

It is important to be wary of predatory credit repair services, as many are scams that target those in debt, according to FTC guidance. 

How Long Will it Take to See Improvement?

It’s important to understand that you will not see improvement overnight, and sticking to the habits you’ve built is critical, not only to improve your credit, but for your long-term financial goals. As such, those who stick with their plan can see improvements in three to six months. 

In many instances, you’ll also find that you can start receiving more favorable loan terms within one year of rebuilding your credit. 

Work With Our Experienced Louisville Bankruptcy Team

One of the most important actions you must remember to take is hiring a talented Louisville, Kentucky consumer bankruptcy lawyer. Our team at Schwartz Bankruptcy Law Center can help create a personalized plan to help you get back on track after you’ve filed for bankruptcy. When you’re ready to get started, we’re here to help. Contact us today to learn how we can represent you during these difficult times.