• 11
  • April
    2011

Although the recession has been financially and personally devastating to millions of Americans, there has been one positive side effect: much of the negative stigma that once surrounded bankruptcy has disappeared, or at least decreased. Most of us now know at least one person who has filed for bankruptcy, or have personally filed. We understand that bankruptcy is not skipping out on debt, but an unavoidable choice that must be made after unemployment, medical debt, or plummeting home values have wiped the savings account clean.

Despite the newfound lack of negative stigma, many Tennessee residents are still highly reluctant to file for bankruptcy for fear that it will permanently damage their credit. While this is obviously an important consideration, it should not be the sole reason that debtor avoids filing. There are many easy ways for consumers to rebuild their credit after a bankruptcy.

First, a filer should be informed. Request a credit report from each of the three credit reporting agencies, which should be free. Then examine the reports closely for any errors. If you find any, report them to the agencies. They have a duty to correct them.

The reports will list the filer's FICO score, which is based on many things, such as payment history (late or missed payments, bankruptcy filings), the amount of available credit versus the amount of used credit, the types of credit a filer has, and how long various accounts have been open. FICO scores range from about 300 to 900, and a filer can expect the bankruptcy to kick them down about 200 points.

Second, a filer should get credit, if possible, by opening a department store credit card or a secured credit card. It seems counterintuitive, but it is important to build credit following a bankruptcy. However, a filer should examine their payment history and habits, including any that contributed to their financial difficulty, and ensure that they make all payments on time. And slowly but surely, your credit rating will improve.

Source: Redlands Daily Facts, "Damage control: Consumers can rebuild credit after bankruptcy", Kevin Smith and Rebecca U. Cho, 3 April 2011