Many people who are considering filing for Chapter 7 or Chapter 13 bankruptcy relief are under the misconception that by filing bankruptcy their creditworthiness will be completely ruined for seven to 10 years. For most individuals who legitimately fall under the scope of Chapter 7 or Chapter 13 bankruptcy protection, nothing is further from the truth; most times the opposite is true. The majority of people who are considering bankruptcy already have poor credit, i.e. they are seriously behind with their payments to creditors (usually credit card payments). They have little or no hope of ever “catching up” or becoming current with their creditors. For these individuals, filing a Chapter 7 bankruptcy petition is usually the first step on the road to actually beginning to rebuild their credit.

Most people who are eligible to file for Chapter 7 bankruptcy protection cannot get mortgages, car loans or credit at reasonable rates or at all. Filing a bankruptcy petition will likely lower the petitioner(s)' credit scores on file with the three national credit reporting agencies: Experian, Trans Union and Equifax (referred to as the "agencies" in the text ahead). Once the tremendous burden of removing all unsecured debt is lifted from their shoulders, Chapter 7 petitioners usually find the ability to pay all of their remaining bills and debts on time.

Every post-petition payment is on record with the agencies. By paying at least three (preferably four) creditors on time each month, most individuals are able to be approved for mortgages, car loans and related credit at either market or slightly higher interest rates (1/2% to 1% higher) as early as one year after the debt is discharged by the bankruptcy court. As an aside, the Chapter 7 bankruptcy process takes about four months from the date of filing through the discharge order from the court.

The type of payments that are reported monthly to the agencies include: mortgages, car loans and almost all credit cards (including store and gas cards). For those filing who do not have a mortgage or own a car, it would probably be best to try to keep two or three (unsecured) credit cards with small balances. This way he or she will continue to pay a minimum of three creditors each month during and after the bankruptcy case is completed.

In this scenario, debtors should have no problem being able to get two or more secured credit cards shortly after receipt of their Discharge Order. Of course, no responsible legal counsel would recommend that petitioners or any individuals, for that matter, build up substantial debt on purpose or especially when facing bankruptcy. It is recommended that after the bankruptcy is discharged, individuals charge the minimum amount they can, i.e. $10.00 or less to each of their credit cards, and pay off their entire balances in full every month.

While paying off the entire balance is preferable, what is most important is that post-bankruptcy, debtors use available secured or unsecured charge cards responsibly for the purpose of re-establishing good credit. It is also critical to pay the at least the minimum balance on time which falls due every month. Being able to have access to credit and having reasonably good credit scores is of great value in our country when making not only major purchases, but smaller ones as well.

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