One of the common myths about bankruptcy is that it permanently ruins your credit. But the opposite is true for Chapter 13. While this type of bankruptcy appears on your credit report for seven years after the date of filing, it can serve as a springboard for rebuilding your credit. In fact, you can start that process even while the Chapter 13 case is ongoing.
One thing to be clear on is that you cannot take on more debt during the Chapter 13 plan without the approval of the bankruptcy court. The Chapter 13 trustee will likely object to your undertaking any loans that would jeopardize the rights of the creditors you are paying off. However, there are other actions you can take to restore your credit score while still carrying out your payment plan. Here are five practical steps:
- Monitor your credit report — Although a Chapter 13 bankruptcy initially makes a large dent in your credit score, it will gradually improve as you repay debts. Look at your credit report monthly during bankruptcy to make sure repaid debts are properly marked as discharged.
- Dispute negative listings on your report — The Fair Debt Collection Practices Act gives you the right to raise disputes with a creditor or reporting agency over items in your report. You also can demand documentation of any debt. Disputed items must be so marked, which makes them less damaging.
- Pay your debts on time — This means all debts, not just monthly payments to the Chapter 13 trustee. Paying your mortgage, utilities, taxes and installment payments on schedule accounts for more than a third of your credit score.
- Become an authorized user on someone else’s credit card — A relative or other loved one may be willing to add you to their credit card as an authorized user. This does not create a debt obligation in your name. However, the payments you make on that card will show up on your credit report, which will further help you establish a pattern of on-time payments.
- Open a secured credit card account — This means depositing a certain amount of money with a lender as the condition for getting a credit card issued. The amount of the deposit serves as the credit limit. This is not considered new debt, since the lender is fully secured. However, using the card and making payments on time and in full will help boost your credit score.
Jeff Field & Associates helps people throughout the Atlanta area file for Chapter 13 bankruptcy and advises them on rebuilding credit, both during the case and after it is over. We have offices in Athens, Douglasville, Gainesville, Lawrenceville, Marietta and Scottdale. If you have questions about how we can help you, please call 404-381-1278 or contact us online to arrange a free initial consultation.