Rebuilding credit possible after filing for bankruptcy

Before people struggling with debt in New Jersey go forward with a bankruptcy, they typically want to know what the long-term effect of that action will be. Although bankruptcies present a negative item on people's credit histories, they still have opportunities to improve and maintain their credit scores as years go by.

Chapter 7 bankruptcies remain on credit histories for 10 years, but Chapter 13 bankruptcies drop off credit histories after only seven years. During either of these periods, people often see an immediate improvement in their actual credit scores in the first two years after filing. This happens because the legal action has resolved outstanding debts so that they no longer show as unpaid or past due.

After a bankruptcy, people might obtain new credit cards or loans, but the interest rates would likely be high. Some lenders might not extend credit at all. When a recovering debtor does get credit, every effort should be made to stay current with payments. As years go by and someone demonstrates an ability to repay loans, the credit history will present a record of success, which could counteract a bankruptcy history in the eyes of lenders. In the years following a bankruptcy, people should acquire and repay some loans, even if the amounts are small, so that their credit histories will show new and positive activity instead of a bankruptcy followed by nothing.

Someone who still has income but has become overwhelmed by debts might qualify for Chapter 13 bankruptcy. During a consultation with an attorney, a person might learn how the bankruptcy would reorganize debts into a payment plan that reduces strain on the monthly budget. The person might also avoid liquidating assets. An attorney may manage communications with creditors and prepare all court paperwork.

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