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Repairing your credit after bankruptcy

While the economy is slowly picking up, unemployment remains high and almost 15 percent of those with jobs are considered underemployed. An estimated 1.2 million Americans filed for bankruptcy last year as wages failed to keep up with inflation.

One of the main benefits of a Chapter 7 bankruptcy is a chance at a fresh start. Bankruptcy - either Chapter 7 or Chapter 13 - provides an automatic stay, which stops repossession, foreclosure, utility shut-offs and debt collection activities. Either filing option will eliminate most unsecured debt, such as credit card debt or medical bills. Usually you will also be able to keep some property.

A Chapter 13 bankruptcy filing may allow you to keep your home and includes monthly payments over a three to five year plan. It generally requires that you still have income coming in each month. Chapter 7 on the other hand is where a trustee sells all non-exempt property. Any debts remaining after the sale are discharged.

Many may have worries about how a bankruptcy will affect their credit and for how long.

Lawsuit affects how credit bureaus report discharged debts

A class action filed against the three credit bureaus - Equifax, Experian and TransUnion - alleged debt discharged in bankruptcy still appeared as delinquent on credit reports. The companies were slow to investigate errors even when consumers complained of the problem.

As part of a settlement, the bureaus agreed to make sure that debts from before a bankruptcy no longer appear as due and payable. Debts that generally cannot be discharged, such as student loans would still appear.

While your credit rating takes a hit in the two years after a bankruptcy filing and remains on your credit history for 10 years, an incorrect report of a due and payable debt could make it even worse. Check your credit report after bankruptcy to ensure that the reporting bureaus have included past debts as part of the bankruptcy filing and they no longer appear as due and payable.

Steps to improve your credit score

Paying new debts after bankruptcy helps to improve your credit score gradually. Repairing your credit score takes time, so do not waste money with companies who promise quick fixes.

One method that will help build up your credit score is to obtain a secured credit card. This is a good way to keep you out of debt and operates similar to a debit card. When you deposit $200 on the card, this becomes your limit. Make sure the bank that issues the card reports activity to the main credit bureaus and this will improve your score. Avoid prepaid cards, which come with high fees and do not report to credit bureaus.

When collection activities interfere with all aspects of your life and you do not have the means to pay what is owed, contact a bankruptcy attorney for more information on your options. Bankruptcy may provide the fresh start that you need to get back on solid financial footing.

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