Rebuilding Your Credit After Bankruptcy: Steps to Take
Bankruptcy offers a chance for a financial reset, an opportunity to rebuild your credit, and start afresh. By filing for bankruptcy, you are taking control of your financial situation and working towards a better future. However, it is a complicated process that requires careful consideration and planning.
At Rushing Law Firm, PLLC, we understand the struggles that follow bankruptcy. Our team has extensive experience helping Arkansas residents in El Dorado, Magnolia, Camden, Crossett-Union County, Columbia County, Ashley County, and Ouachita County overcome financial challenges and regain financial stability.
Bankruptcy doesn’t have to be the end of your financial story. It’s a stepping stone; with the right actions, you can rebuild your credit and set the foundation for a stronger financial future.
Steps to Rebuild Your Credit After Filing for Bankruptcy
Bankruptcy is a financial tool that can help you overcome the burden of debt and financial insecurity. If you are struggling with overwhelming debt, filing for Chapter 7 or Chapter 13 bankruptcy can help you regain your financial footing. But what steps should you take after bankruptcy? Consider the following steps:
1. Understand Your Bankruptcy Type
The first step to rebuilding credit is understanding the type of bankruptcy you filed. Most people choose between Chapter 7 and Chapter 13 bankruptcies.
Chapter 7 bankruptcy: Often referred to as liquidation bankruptcy, this process eliminates most unsecured debts. It stays on your credit report for 10 years.
Chapter 13 bankruptcy: Known as the repayment plan bankruptcy, you reorganize your debts and pay them off over three to five years. This remains on your credit report for seven years.
Knowing how long your bankruptcy impacts your credit can help you manage expectations and chart a timeline for financial improvement.
2. Review Your Credit Report
It's important to review your credit report after bankruptcy. You can obtain free reports from each of the three major credit bureaus—Equifax, Experian, and TransUnion—at least once per year through AnnualCreditReport.com.
Look for inaccuracies, such as debts that should have been discharged but still appear as active or overdue. Be sure to dispute errors immediately with the credit bureau to improve your credit score.
3. Create a Budget and Start Saving
A budget is your best ally while you rebuild credit. Track your monthly income and expenses, and aim to set aside money for savings. Building a small emergency fund is particularly helpful, as it prevents you from relying on credit for unexpected expenses.
Start with attainable goals—for example, saving $500 over six months. Over time, increase this amount as your financial situation improves. This practice builds monetary security and shows potential lenders that you are financially responsible.
4. Apply for a Secured Credit Card
Re-establishing credit requires using it responsibly. A secured credit card is a practical starting point. These cards require a refundable deposit upfront, which often becomes your credit limit. Use the card for small purchases you can pay off in full each month to build a positive payment history.
Make sure the card issuer reports to all three credit bureaus. This makes sure your responsible usage reflects on your credit report.
5. Keep Credit Utilization Low
Your credit utilization ratio, i.e., the amount of available credit you use, determines your credit score. Aim to use no more than 30% of your available credit at any given time. For example, if your credit limit is $500, keep your outstanding balance below $150.
Paying off your credit balances in full each month can help keep your utilization low and avoid interest charges.
6. Diversify Your Credit
Diversify your credit portfolio over time. This might include opening an installment loan, such as a car loan, alongside your credit card. Showing that you can responsibly manage various types of credit signals lenders that you are less of a financial risk.
However, it's important to move cautiously. Only apply for credit you genuinely need and can responsibly repay.
7. Pay Bills on Time
Your payment history is the most significant factor affecting your credit score, making up 35% of the total calculation. Set up reminders or enroll in automatic bill payments to never miss a due date. Every timely payment adds positive information to your credit report.
Bankruptcy Laws in Arkansas
Arkansas allows bankruptcy filers to choose between federal and state exemption systems, which determine what property can be protected during the bankruptcy process. Under Arkansas law, commonly exempt assets include:
Homestead exemption: Protects your primary residence up to the full value, depending on the size of your property.
Personal property exemption: Includes items such as clothing, furniture, tools of the trade, and up to $500 in cash or bank deposits.
Wildcard exemption: Any unused exemption amount can be applied to other assets for added flexibility.
Motor vehicle exemption: Protects the value of one motor vehicle up to $3,675, allowing you to retain essential transportation.
Retirement accounts exemption: Fully protects tax-exempt retirement accounts, including 401(k)s, IRAs, and pension plans.
Public benefits exemption: Protects government assistance such as Social Security, unemployment compensation, and public assistance from being seized during bankruptcy.
Bankruptcy Attorney in El Dorado, Arkansas
At Rushing Law Firm, PLLC, we take the stress out of working with the legal system and equip you with the knowledge you need to move forward confidently. With years of experience helping people file for personal bankruptcy, Attorney Robert N. Rushing has built a reputation for reliability.
Located in El Dorado, Arkansas, we serve clients throughout Magnolia, Camden, Crossett, Union County, Columbia County, Ashley County, and Ouachita County. Call today to schedule a consultation.