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Reestablishing good credit after a bankruptcy

Filing for bankruptcy affects a person’s credit report for years. It is possible to begin improving one’s credit score soon after a bankruptcy discharge.

Bankruptcy is a process that begins well before filing and often does not end for years after the debt discharge. This is because bankruptcy has financial ramifications that affect a person's credit rating and other factors for quite a long time after the process is finished. However, it does not mean that residents of Connecticut and elsewhere should shy away from considering bankruptcy if they have insurmountable financial challenges. Bankruptcy can be an effective way to get back on one's feet, when the proper planning and steps have been taken afterwards.

What about avoiding bankruptcy?

According to Fox Business, many people, including some in financial institutions, advise others to avoid filing for bankruptcy at all costs. There is some degree of stigma attached to a personal bankruptcy, despite many families finding success after taking this step. Instead of focusing on the negative aspects of a bankruptcy, it might help to consider that a discharge may make it possible down the road to get approved for better interest rates, turn around one's credit and, of course, wipe out debt that has been impossible to repay.

There are a few challenges after a bankruptcy that people with financial problems should consider. A bankruptcy discharge stays on credit reports for up to 10 years. For at least a couple years after bankruptcy, it may not be possible to get a credit card with a low interest rate. Some employers and landlords look at a person's credit report before deciding to hire or to approve a rental application. However, it is important to remember that these problems are temporary and, in many cases, minor in comparison to the problems that led to the bankruptcy in the first place. In some cases the credit-based problems often arising in the first couple of years after bankruptcy can be minimized by careful pre-bankruptcy planning.

How do you recover financially from a bankruptcy?

After obtaining a fresh start through bankruptcy, credit reports will immediately begin to reflect a person's current credit behaviors while the reporting of some pre-bankruptcy credit problems will be eliminated. The discharge will show up on credit reports, but so will timely bill payments (including utility bills) and wise borrowing actions, such as keeping the balance of a new credit card paid down. Within 18 months to two years of a bankruptcy, people may be able to get approved for a mortgage loan. Car financing and credit card applications may be approved sooner. In fact, many lenders specialize in offering credit to people post-bankruptcy. If spending is kept to a minimum and payments are made on time, this can be an effective way of improving one's credit.

It is important, however, to be wary of lenders that offer deals that look too good to be true or seem overly pushy about getting people to sign up. There are some predatory lending scams that target those who are attempting to recover from a bankruptcy.

Filing for bankruptcy is often a complex procedure, and it is important to fully understand what it may entail. An experienced Connecticut bankruptcy lawyer may be able to help.

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