Rebuild credit after bankruptcy/bancarrota

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Lately it seems like I’ve had a lot of questions about rebuilding credit after bankruptcy.  Let’s start with an excerpt from the website, which is widely regarded as an expert in all things credit score, regarding how long any negative information remains on your credit report:

It depends on the type of negative information. Here’s the basic breakdown of how long different types of negative information will remain on your credit report:
  • Late payments: 7 years
  • Bankruptcies: 7 years for completed Chapter 13 bankruptcies and 10 years for Chapter 7 bankruptcies.
  • Foreclosures: 7 years
  • Collections: Generally, about 7 years, depending on the age of the debt being collected.
  • Public Record: Generally 7 years, although unpaid tax liens can remain indefinitely.
Keep in mind:
For all of these negative items, the older they are the less impact they are going to have on your FICO® score. For example, a collection that is 5 years old will hurt much less than a collection that is 5 months old.

So, you see a general trend here:  7 years, with the exception of 10 years after a Chapter 7 bankruptcy.  But, as the note says, keep in mind that the older negative information is, the less of an impact it will have.  As a general rule of thumb, I advise my clients that they will have flat out bad credit for two years after filing a Chapter 7 bankruptcy.  Then, slowly, their credit will get better, assuming they are doing the right things to improve their scores (no late payments, no collections, no student loan defaults, no back taxes, no late child support!!!).  At the 3 year mark, their credit will be noticeably better.  And by the 5 year mark after a bankruptcy, they have pretty much recovered completely, again assuming they are doing the right things to build their credit.  So, even though the Chapter 7 bankruptcy stays on the credit report for 10 years, it’s impact will be minimal after 5 years, frankly because you’ve had time to build a new track record.  Over a 5 year period, creditors can judge pretty well whether you took the fresh start that bankruptcy gave you and made smart credit decisions.  So, if you can hold off buying that new car or getting that new mortgage loan for 2 years after bankruptcy, then you’ll be much better off than trying to do so right after a bankruptcy.  Even after just 2 years, you will qualify for an FHA or a VA home mortgage, for example.  Make it to the 3 year mark and you’ll see a higher chance of getting approved and better loan terms.  At the 5 year mark, well, you might have to answer a question about that old bankruptcy, but it will be largely disregarded in favor of the 5 years of good credit history you’ve worked hard to build since your case.  With Chapter 13 bankruptcies, the same is true except that the entire time your Chapter 13 case is open, your credit will be poor.  Then, once you successfully complete your Chapter 13 case and the case is closed by the Court, your credit will get much, much better almost instantly.

By Jeff Wagoner
W M Law President
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Jeffrey L. Wagoner


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