You’ve filed for bankruptcy in Maryland, liquidated all your assets and paid your creditors (or completed your repayment plan if you filed Chapter 13 or 11), and have discharged all remaining unsecured debt. Now what do you do?
Well, the whole purpose of filing for bankruptcy in the first place is to get out from under all the debt that ruined your reputation and credit rating and restore your financial situation to a state of credit worthiness. So the next thing to do is take steps that ensure you accomplished this goal. As aMaryland bankruptcy attorney, I recommend the following steps to all my clients after a bankruptcy.
5 Steps to Rebuilding Credit after Bankruptcy in Maryland
- Make All Payments On Time to All Creditors and Service Providers — This is the most important step in recovering from a bankruptcy. Paying all your bills on time, including utilities and other service providers as well as all lenders, prevents any new negative items from appearing on your credit report. When late payments get reported after your bankruptcy, potential lenders see it as an indication that you haven’t changed your ways and continue to be a credit risk. This goes not only for the bills and creditors that remain immediately after your bankruptcy, but also for any new creditors, including secured credit lines, and service providers that you take on after the bankruptcy.
- Have a Maryland Bankruptcy Attorney Review Your Credit Report 3 to 6 Months After Your Bankruptcy is Complete — Once your bankruptcy is complete, creditors are required by law to update your credit report. However, they typically don’t update reports because it costs them money to do so. But the items on your credit report are more important to your credit report and credit worthiness than the actual bankruptcy. Your Maryland bankruptcy attorney can help you identify creditors who haven’t updated your report or are reporting erroneous information.
- Contact the Credit Bureaus and Demand Correction of Any Errors on Your Credit Report— All errors identified on your credit report must be disputed with one of the three credit reporting bureaus: TransUnion, Experian and Equifax. The federal Fair Credit Reporting Act requires all credit bureaus to investigate disputes and correct any errors within 30 days. Often the bureaus are unable to verify credit information within 30 days because creditors are slow in getting information to them, so they will correct the item as you request. However, any correction to your credit report is good only until a creditor reports your account status to the bureau again. If the creditor hasn’t changed your account status, that item in your credit report could revert to an erroneous status again. For this reason, you need to check your credit report every six months or so to ensure that any corrected items remain corrected. Your Maryland bankruptcy attorney can help you with any creditors that continue to report erroneous information or bureaus that fail to correct errors.
- Obtain a Secured Credit Card and Begin Rebuilding Your Credit History — Within 3 to 6 months after your bankruptcy it’s a good idea to obtain a secured credit card. A secured credit card is one on which you pay a security deposit, usually $500 to $750, and are allowed to charge up to about 80% of the security deposit. You then pay back the amount you charge, along with finance fees, in monthly installments just like a regular credit card. This enables you to establish a history of successfully paying back borrowed money. Remember, though, that it’s absolutely essential that you make the monthly payments on time every month. It works best if you pay the balance in full each month as it will prepare you for using a regular, unsecured credit card later on. Failure to make a monthly payment results in a delinquent account status on your credit rating and has a negative effect on rebuilding your credit. Also remember that it is NOT OK to miss a scheduled payment and then pay the balance in full. Many people make this mistake thinking it balances out in the end, but it does not. Failure to make a payment, even if you pay the balance in full shortly after the due date, results in a negative mark on your credit report.
- After 6 to 12 Months of Using a Secured Credit Card Obtain a Regular Credit Card — After you’ve used secured credit card for a while and established a pattern for paying back borrowed money, you’ll begin receiving offers for regular, unsecured credit cards. Pick a couple with the lowest interest rates and best terms and apply for them. Use these credit cards judiciously and faithfully make each month’s payments just as you did with the secured credit card. Again, it’s best to pay the full balance each month. Don’t get in the habit of just paying the minimum payment each month. Paying just the minimum results in more interest accumulating on your balance which increases the amount due each month. Paying the minimum each month indicates to creditors that you are overstretched financially, and the habit eventually puts a strain on your ability to make each month’s payment. This rule goes for secured credit lines as well as unsecured lines. Lastly, don’t open more than two credit card accounts at a time. If you obtain two unsecured credit cards, close the secured credit card and get your deposit back. Having more than two credit cards indicates a person is living beyond their means and is likely to have trouble paying back loans.
Forming good habits to restore credit worthiness
These steps should take you a long way to restoring your credit score and credit worthiness. However, the important thing is to use these steps as a foundation for forming good credit habits. Good credit habits include making all payments on time, paying the full balance owed each month whenever possible, avoid paying only the minimum payment each month on credit lines, avoiding borrowing more than you can pay back each month, and checking your credit report every six to 12 months to ensure your account information is being reported correctly.
If you have any questions about recovering from bankruptcy or are considering whether to file bankruptcy in Maryland, our bankruptcy attorney’s office can help. Call our office at 301-441-8780to schedule an appointment.