What can you do after Chapter 7 to rebuild financially? Actually, quite a bit. The idea of bankruptcy is to give you a new start. Here are some things you can do to get back on track:
- Rebuild your credit by taking out small loans and paying them back on time.
- Don’t worry about keeping your job or finding a new one. Bankruptcy probably doesn’t affect employment as much as you think.
- You can buy a car if you are patient and watch out for scams.
- You may be able to purchase a house after about two years if you work on improving your credit and explore all of the mortgage options available.
Now that you are through the process, your debt is discharged, and your credit is damaged. You can repair it, though, with discipline and patience.
Rebuilding After a Chapter 7 Discharge
Rebuilding your credit begins with a new attitude. Maybe you got here because of reckless spending but maybe you didn’t. You still need discipline not to spend more money than necessary, and that’s hard. Here are some steps to take to get back on your feet:
- Make sure your credit report shows your bankruptcy – It’s better than displaying delinquent accounts. Check your reports and make sure they’re accurate.
- Keep paying accounts that didn’t get discharged on time.
- Don’t dispute your bankruptcy to try to get it off your reports – It takes 7-10 years for it to go off. Until then, don’t try to remove it.
- Get new credit – There are more options than you think, but a secured card is the way to go for many. You must put down a deposit, but after a year making payments on time, most cards convert to unsecured.
- Don’t change jobs – Lenders also look at job history to determine your responsibility. After bankruptcy, they look at it more closely.
- Pay all your bills on time.
- Keep your balances low – Ask yourself if you need every purchase you make, and don’t overspend.
- Don’t apply for several cards or other loans at once – If you get turned down, focus on paying off more debt and apply somewhere else after 6 months.1
Finally, be patient. Any mistake makes things harder. Remember there aren’t short cuts, and some people want to make it harder. Just because your debt was discharged doesn’t mean creditors won’t continue to report negative information. Also, some credit repair companies will contact you and say they can get your bankruptcy removed for a fee. Don’t believe them.
You can get credit but remember that you look risky to lenders. It’s a slow process to get more after bankruptcy, but here are some places you can start to get it back:
- Secured loan – Your local bank or credit union lets you borrow money against the money you have on deposit or you make payments to a savings account and they release the money to you after a certain amount.
- Secured card – You make a deposit, and your limit is that deposit.
- Co-signed card or loan – Someone with a good history agrees to help you by assuming the risk that you will pay your bills on time. If anything goes wrong, they are on the hook for your debt.
The first two methods are preferable because you are taking responsibility for yourself. Co-signing with a friend or family member may bring emotional problems into your relationships. While it may seem like a good idea and they want to help you, be very careful. If you have more problems and don’t make on-time payments you will hurt them financially.2
It takes years to rebuild. Credit agencies build your scores based on reports. Some components of the report you have control over, and some you don’t.
- Bankruptcy stays on the report for 10 years.
- Discharged debts should show a balance of $0 and fall off after 7 years.
The good news is you can apply for new credit immediately and start improving your scores. So, you can start rebuilding immediately, but it takes 10 years to remove the bankruptcy.3
Keeping or Getting a Job After Chapter 7
In most cases, bankruptcy shouldn’t impact your search for a job or even your ability to keep a job. Here are some important things to keep in mind if you already have a job:
- Your employer can’t fire you because of it. They must have another valid reason.
- If your wages were garnished it may relieve some stress at work because employers don’t want to be responsible for collecting debts for creditors.
- You aren’t required to tell your employer about your bankruptcy.
If you look for a job, remember:
- Some employers check credit and will see the filing. Be prepared.
- No government agency can deny you employment because of it.
- Private companies may not hire you if it directly relates to the job.
If you are already employed, it probably won’t impact you at all. If you are looking for a job it probably won’t either unless you want something in the financial industry. Either way, try not to change jobs unless you have to because that looks bad to employers and lenders.4
Buying a Car After Chapter 7
The timing for how soon you can buy a car depends on several factors, but most people should wait about a year if you can. There are things, though, that help you get into a car sooner, rather than later:
- Buy a less expensive car – the lower the price, the lower the loan, the better your chance of getting it.
- Find a co-signer – As we said before, be careful with this. Remember they are on the hook with you if you can’t make your payments.
- Wait until you get your discharge statement from the court – This usually takes about 60 days, and it does influence lenders.
Be patient, because the longer you wait the better terms you will get for your car loan. One more idea is to go to your bank or a local credit union to see what loan options they have because they usually have programs for people with damaged credit.5
Buying a House After Chapter 7
You can buy a house after bankruptcy, but the average waiting period is two years. Each type of mortgage loan has its own restrictions, so make sure you know which is best for you.
- Federal Housing Authority (FHA) Loan – In most cases, you need to wait two years. You need to have a score of 630 with 3.5% down or 580 with 10% down.
- Veteran’s Affairs (VA) Loan – No down payment or minimum score. They consider your credit re-established after 2 years.
- Conventional loans – These aren’t insured by the government like the first two, so they are harder to get. Each bank has its own requirement so shop around and see who may have a good program.
Just like with car loans, your local bank or credit union may have a program to help people in your situation. Also, reputable mortgage brokers know the latest programs to help people with bad credit get into a home.