Have you – or someone you know – declared bankruptcy in the past? Or, are you thinking about it now, as you see your credit card and debt balances rising so fast that you feel like you’re drowning and need a financial lifeline? In fact, more than 500,000 Americans file for bankruptcy each year, and that number was closer to 900,000 people per annum during the last Great Recession.

There are various reasons for filing bankruptcy, of course, including too much reckless spending on credit cards, unanticipated medical debt (that’s actually the leading cause of bankruptcies now!), or even an investment or business venture that’s going under.

No matter why you have bills and financial obligations that you can no longer keep up with, bankruptcy is a legitimate legal instrument in place to protect you. Sometimes, it’s the best and smartest course of action, so nothing to be ashamed of.

However, you may feel the stigma of a BK once you try to get back on your feet and apply for new credit, take out a loan, or even get a mortgage again – unless you proactively rebuild your credit score.

In fact, a bankruptcy showing up on your credit report can torpedo your FICO by 130-150 points if your score was already subpar (most likely), or a drop of around 200 points if this bankruptcy was one of the only negative blemishes on your report.

As I mentioned above, its not the impact to your credit score that does the real damage, as it was probably mired with maxed out accounts, late payments, and overextended ratios if you already had to file for bankruptcy.

But most people think that a bankruptcy is like a death sentence for your ability to get back on your feet and get new credit in the future, which couldn’t be further from the truth.

Sure, most bankruptcies will continue to report on your credit file for up to 10 years, and the collections and late payments will keep reporting for a full seven years after they went delinquent.

However, while a Chapter 7 (the most common type of personal bankruptcy) wipes out your debt obligation by declaring that you’re legally insolvent, it doesn’t wipe out the damage to your credit.

But the great news is that you can start taking steps almost immediately to rehabilitate your credit and get back on your feet after bankruptcy.

Here are some tips on how to fix your credit score after filing for bankruptcy:

-Remember that although a bankruptcy may appear on your credit for a full ten years, it’s significance (and how much it pulls down your score) will diminish over time.

-You can speed up the process of improving your score by adding new, positive accounts to your credit file.

-However, it’s essential with post-chapter 7 bankruptcy credit repair that you start small, with stepping stones that will prove your creditworthiness to the banks and credit agencies once again.

-One essential cornerstone to rebuild your credit after a Chapter 7 bankruptcy is by applying for a secured credit card. There are several kinds (and we have our favorite secured card that we’ve seen work like a charm) but, essentially, you’ll be putting a deposit down when your application is accepted. That deposit – which may be a couple hundred dollars to start – will be equal (or close to) the available credit on that card, thereby eliminating any risk for the lender.

As you spend up a small balance on this secured card and pay it off on time every month, the credit bureaus will see a positive tradeline that’s displaying responsible use, and your score will take a huge step in the right direction.

However, it’s important that you take out the right secured card that reports your on-time payments to all three credit bureaus.

-Another helpful strategy is to become an Authorized User on someone else’s credit card or account. They don’t even have to actually give you a credit card, but just having that tradeline appear on your credit report can really help your score.

-Even better, ask a (good) friend or family member to become a co-signer for a new loan for you, whether it’s a credit card or a small bank loan. Likewise, that will vastly improve your score over time as you pay by the due date every single month going forward.

Rebuilding credit again after a Chapter 7

You may soon be shocked that you start getting offers for new credit in the mail and online, even almost immediately after your BK is discharged. Even though your score may be in the dumps, banks and lenders love to extend debt to people who just filed bankruptcy.

Why? You can only file a Chapter 7 bankruptcy every eight years, so they know that you’re legally obligated for any debt you take out with them. Likewise, these secured and starter credit cards and accounts often come with exorbitant fees and interest rates – the high cost of getting back on your feet.

But, that shouldn’t deter you if you’re just using a secured card for a few hundred dollars to rehabilitate your FICO score.

In short order, your score will start looking respectable enough that you’ll receive an offer for a legitimate credit card that’s not secured.

Just remember to keep your balances low – below 30% of your total available debt is recommended, but around 10% or less is even better if you want your credit score to keep going in the right direction.

Amass a saving account for rainy days or emergencies and pay cash for more purchases instead of charging on plastic as your default method of payment again. Carefully map out your budget and make sure that you spend less than you make, putting aside plenty for savings, investing, and managing debt.

As your credit rebounds from a Chapter 7 bankruptcy, it’s also important that you access your credit report periodically (you can request a free copy of your report from each of the bureaus once a year, which means you can check it every four months at least). You may even want to sign up for some sort of credit monitoring or credit protection so that you won’t be the victim of data hackers or ID thefts, which could really set you back at the worst time.

Blue Water Credit is always here to help at every stage of the process, and we have many clients who come to use before they file bankruptcy or during the process, allowing us so strategize and start repairing their credit scores as soon as possible.

Contact us to get more information and remember that a chapter 7 bankruptcy is a setback – not a death sentence- for your credit score!