Personal bankruptcy is useful if you owe money you can’t pay back. This financial tool allows for many types of debt to be discharged. However, keep in mind that the filing will appear on your credit report, and your score will likely drop. Find out how to handle the outcome and improve your score in the following guide.

How Personal Bankruptcy Impacts Your Credit Score

The two most common types of personal bankruptcy are Chapter 7 and Chapter 13. With a Chapter 7 filing, your debts can be discharged in a matter of months. However, the filing remains on your credit report for 10 years.

Chapter 13 bankruptcy requires you to pay back more of your debts but is deleted from your credit report after seven years. You’ll pay back a portion of the money you owe over a period of three to five years according to a court-approved payment plan.

How to Build Up Credit After Personal Bankruptcy

The good news is that your credit report won’t be affected permanently. You can even start building your score up again immediately. First, don't make the mistake of deleting old accounts. The length of credit history is a factor in your score. Plus, you may have good credit from the past.

Next, work on reestablishing credit. Get a secured credit card, which requires you to put up a deposit in the amount of the credit line; use it and pay it off regularly. You can also use store cards to gain credit. Later, diversify your credit by taking out a small loan, like for a car.

Finally, beware of new credit card offers. Some companies target individuals who have filed for bankruptcy. Always read the fine print on offers, particularly when it comes to interest rates.

Don’t let a credit score reduction deter you from filing for bankruptcy when necessary. Consult Donald L. Spafford Jr., Attorney at Law, in Honolulu, HI, on the right route to take. This lawyer has more than 30 years of experience helping clients get out of sticky financial situations. He works on both commercial and personal bankruptcy as well as business law matters. Review his profile online. For an appointment, call (808) 532-6300.