For those struggling financially, bankruptcy can be a great option for debt relief. Bankruptcy does affect credit score, but it is possible to rebuild and boost your score. Keep reading to learn more about rebuilding your credit after bankruptcy.
Bankruptcy in New York
Bankruptcy is a debt relief solution that utilizes the legal system as opposed to independent methods of debt relief. In general, individuals struggling with debt may file for one of two bankruptcy options: Chapter 7 or Chapter 13.
Chapter 7 bankruptcy, also known as liquidation, involves designating a trustee to oversee the sale (liquidation) of the individual’s assets to create funds with which the creditors may be paid. Chapter 7 can sometimes involve foreclosure or require the individual to sell other belongings like their car. It is crucial that those filing for bankruptcy enlist the help of a qualified attorney.
Chapter 13 does not require liquidation. Instead, the individual must draft a repayment plan that will result in full repayment of all debts no fail. During Chapter 13, the individual must provide detailed information regarding their finances, assets, and debts. Once they have gathered the necessary information, they must draft their repayment plan.
New York offers some exemptions for portions of an estate. For example, the homestead exemption allows bankruptcy filers in some boroughs and counties to protect equity in their home up to $179,950.
The Cost of Bankruptcy
Bankruptcy can result in significant debt relief, but it is important to understand that the end result is not the whole picture. Filing and preparing for bankruptcy takes time and hard work and many who file need an attorney to assist with the process to ensure petition approval. Chapter 7 may take several months, while Chapter 13 often takes three or five years to resolve.
How long does it take to rebuild your credit score and credit report after bankruptcy? Many clients believe that they will not have credit anymore for 7-8 years which is not true. Normally, about 6-12 months after bankruptcy, clients see improvement to their credit scores.
How long does it take to get credit after bankruptcy? Many clients believe they will not be able to get credit cards after bankruptcy for 5-7 years. That is simply not true. Normally, 3-4 months after the bankruptcy, clients get new credit card offers. Using those credit cards and using them wisely can help rebuild your credit score quicker.
However, it is important to understand that while bankruptcy does impact your credit, you can rebuild your credit over time very quickly.
How To Improve Your Credit Score Post-Bankruptcy
Tip #1: Check Your Score
While it may go without saying, you should check your score regularly. If you do not know where you stand, there is no frame of reference for how much needs to change. Most banking and credit card apps have a credit check feature that sends users alerts if their score changes.
Tip #2: Practice Responsible Credit Habits
Struggling with debt is debilitating, but its important to understand that it is not always your fault. Outside factors like medical bills, job loss, education and the economy can put you under financial strain.
However, working the factors within your control can be effective. When rebuilding your credit, avoid:
- Late payments or insufficient payments
- High credit use
- High balances
Keep up an emergency fund and know that it takes time to see results.
Tip #3: Use the Cosigner Advantage
Most apartments, lenders, and banks offer borrowers the option (or they require borrowers) to have a cosigner. Cosigners are people with good credit who sign for a loan, apartment, or other financial investment along with the main signer who may not have as strong a score.
Using a cosigner ensures that you get the same financial opportunities they had before bankruptcy.
Takeaway
Bankruptcy is a legal process that helps people get the debt relief they need, and normally months after you will see in improvement in your credit score. If you take the right steps, you can build a brighter financial future quickly.
If you are considering bankruptcy, contact the Law Office of Seni Popat, P.C.
