Can I Rebuild My Credit After Filing Chapter 7 Bankruptcy?

It’s no secret that bankruptcy will have an impact on your credit. However, most people who are in the kind of position that requires bankruptcy as a solution aren’t likely to care, at least not right away. They see bankruptcy as a way to improve their lives in the short term and rebuilding the foundation of their finances so that they can improve their future, too.  

However, for those of you who have moved past those initial phases of the bankruptcy process, you might now be wondering: how can I rebuild my credit after a chapter 7? Is there a way out and up, after this? Will I always have to deal with the fallout from this decision?  

The answer is that your credit can be rebuilt, and you can do it no matter how bad your previous or current situation look. There are essentially three steps to rebuilding your credit after a chapter 7 bankruptcy. These include: 

• Replacing bad money habits with good ones.
• Slowly taking on new loans or lines of credit.
• Continuing to carefully monitor your credit and maintaining your payments.

We’ll discuss each of these in more detail, but as we do, we’ll also bust a few myths about the credit reconstruction process.  

Myth: Once You Have Bad Money Habits, You’ll Have Them for Life

That is simply false. If you’re here, you already know this to be untrue, since you’re asking yourself “how can I rebuild my credit?”, rather than “can I rebuild my credit at all?” The truth is, anyone can learn new, smarter money management habits. If you think your future is worth the effort, you have all the tools you need to get started! 

You may choose to begin this process by enrolling in a money management course. Many community programs offer these courses for free or for a very small fee. You are likely to have completed some sort of money management training as part of your bankruptcy agreement, but pursuing further education can help you improve your habits even faster.  

Just because you’ve made some mistakes in the past doesn’t mean they have to follow you forever. Take what you’ve experienced with you as a lesson, not a death sentence for your financial future. You’ll find that you are more than capable of rebuilding your credit through better, more sensible money management habits.  

Myth: Credit Cards Can’t Help Me Rebuild My Credit

This is not true, although the misunderstanding is understandable. After all, for many people, the credit card or a similar personal loan is what got them into the kind of trouble that required bankruptcy in the first place. You can’t address the problem with the very thing that got you into trouble to start with, can you? 

However, this isn’t the case with credit cards. While it is certainly true that new lines of credit should be handled with extreme caution and care after a bankruptcy, they can also be valuable tools in rebuilding your credit. Since you’re working on improving those old, bad money habits, take the opportunity to take out a very small line of credit in the reparation process. If your options are limited – as they might be, after a bankruptcy – consider taking out a secured line of credit. This will help you rebuild your credit score without as much risk, since you will need to put up collateral to obtain the loan in the first place.  

These small-limit credit cards and miniscule personal loans are a great next step in repairing your damaged credit and rebuilding it into a high and healthy score that can help you purchase a car, a house, or other major financial move one day in the future! 

Myth: Every Dime Should Go Toward Debt Repayment While I Rebuild My Credit

Again, this is an understandable fallacy. While it is very important to repay outstanding debts in a timely manner and dedicate a significant portion of your expendable funds toward this goal, it shouldn’t be where every bit of your money ends up.  

Even during times of repair and rebuilding, it is crucial to create and maintain your savings. If the pandemic of 2020 – and the resulting financial fallout around the world – has taught us anything, it is that we might never see an emergency situation coming, but being prepared can save lives and livelihoods. Families who had significant savings stored away before the pandemic hit largely fared better than those who had little to nothing in savings. While this seems obvious in retrospect, many of those who had nothing stashed for a “rainy day” were in that situation because they had never seen a need to.  

Remember, rebuilding your credit takes time. Who knows what might happen to you, your family, or even the entire world in that time? Don’t be caught without some money stashed away for that emergency scenario. Putting some money in savings while you rebuild your credit will keep you from having to take out new loans or lines of credit during an unforeseen emergency – and make the process of rebuilding your financial future smoother and easier, in the long run! 

All of this brings together the three steps previously mentioned. With smarter money management skills, you can repair your credit after a chapter 7 bankruptcy, begin taking out new loans to bump it up even further, and stay on top of your payments to keep that score climbing. You can put money aside for emergencies while also keeping your bills paid and avoiding debt, and you absolutely can rebuild your credit to create a better financial future for yourself and your family.  

Still not sure where to start? Talk to the bankruptcy attorneys at the Van Horn Law Group. With experience in assisting clients through all stages of the bankruptcy process – including what comes after discharge – you’ll find that the knowledgeable staff is perfectly suited to help you create an action plan for your success. Give them a call today to learn more and to get started making your goals a reality!