Get Out of Debt Guy

Can I Rebuild My Credit After My Chapter 13 Bankruptcy?

Posted December 13, 2013

WRAL Reader Question

Dear Steve,

I filed Chapter 13 in April of 2009 and confirmed June of 2009 and will be completed at the end of December this year. I had decent credit when I filed, no collections, repossessions or delinquent accounts. I did have a couple of late payments in my past credit history but otherwise my credit was in good shape.

My debt to income ratio after my husband and I separated unfortunately was not in my favor and rather than deal with collections I filed. I have always rented, (been in current lease for almost 8 years) never owned a house so did not lose one in my bankruptcy.

All of my debt was credit card based, no loan defaults. My current car is paid off. Monthly expenses include rent, insurance (car/renter), utilities, two medical bills ($150 total), IRS repayment plan ($75 a month on $1400 tax bill incurred when I changed positions in 2012 from private sector to state) and other day to day expenses.

I check my credit report each year with the free reports and report any issues I see. When I checked last month my credit score was 520. I have worked for the same Enterprise (in different positions) since 2004 and have a very stable work history. I have 2 bank accounts, neither with a credit union, with excellent histories. The only loans I have ever had were for vehicles and those are paid off before my bankruptcy. I currently do not have any built-up savings but I am part of the Teachers Retirement system with my employer.

My question is how long after my discharge is confirmed would I be able to possible look into purchasing a house?? I do know I will need to take steps to establish new good credit. I would like to stop renting and have a home of my own as I need 8 more years to be vested in retirement in my current position and would hope to find a house with a lower monthly payment to help with monthly expenses.

Kristina

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Dear Kristina,

By far the biggest mistake people make after a bankruptcy is to avoid credit. Your credit score only improves when there is new good credit being reported about you. Otherwise your credit history just falls off the cliff with your bankruptcy.

Rebuilding your credit is just stupid easy to do. Follow this guide.

It's not credit that should be avoided but excessive debt. Your credit score will begin to rise if you get the right type of credit, use it responsibly, never pay late, and don't default. I have no worries or concerns my guide won't do the trick for you.

My bigger concern here is your statement about not having any savings. That is going to be the bigger issue in rebuilding your credit. It's not that the savings will help your credit score but you will absolutely need to have a growing savings account that you can draw upon when you run into an unexpected situation and cash available to keep making regular payments on your new credit.

You have no potential for a safer financial future unless you can save money each month. 

The goal needs to be to fit your lifestyle inside your income where you meet your monthly obligations and save each month.

If you follow my guide, start rebuilding a great credit score, and build savings and a downpayment for your new home, I wold expect you to be able to get a good mortgage within a couple of years.

Steve Rhode
WRAL Get Out of Debt Guy

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1 Comment

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  • balitt Dec 17, 3:12 p.m.

    all a credit score means is you plan on borrowing money again.once your out of debt why would you ever wanna borrow again?

About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.