It seems that at least once every day when I am sitting in my office going through a free consultation with a potential client I will get the question, “How does bankruptcy impact my credit?” ?So lets go ahead and get this out of the way:

Bad News Alert: Bankruptcy Will Hurt Your Credit Score.

Good News Alert: You Can Rebuild Your Credit.

Anyone who tells you that bankruptcy won’t hurt your credit is lying to you. Bankruptcy will hurt your credit initially. However, if you are interested in filing bankruptcy your credit is probably already damaged quite a bit or is well on its way to being damaged. One of the nice things about bankruptcy is it allows you to hit the “refresh”? button to start over. The question on whether a bankruptcy will hurt my credit is an easy one to answer. Yes. The more important question we should really be asking is: Can you rebuild your credit after filing bankruptcy and, if so, how? Yes, you can rebuild your credit after filing bankruptcy.

I recommend to our clients a six-step process to rebuild your credit. Today, we will discuss the first step.

After you’ve filed your bankruptcy a critical step is to look over your credit report to make sure that the debts that were discharged from your bankruptcy (Chapter 7 bankruptcy) or are included in your repayment plan (Chapter 13 bankruptcy) are reflected accurately on your credit reports. According to the National Credit Reporting Association, in 2002 almost 1 in 4 credit reports had reporting errors!

If you haven’t done so within the last 12 months, you can pull a free credit report at AnnualCreditReport.com. They are one of the few legit places you can pull your credit report without having to pay any money. If you have included a debt on your bankruptcy but your credit report from either Equifax, Experian or TransUnion shows that debt not included in the bankruptcy then you need to correct that. If you don’t, that debt will remain on your credit report as being delinquent or outstanding and will continue to pull down your credit score.

As someone looking for a fresh financial start, it is important that your credit report is accurately reflecting that your debts are either discharged after your Chapter 7 bankruptcy or are being repaid in a Chapter 13 bankruptcy. If you find information is inaccurate then you need to send, in writing, a letter to each of the credit bureaus, attaching a copy of the Report of Filed Claims and the Bankruptcy Discharge Papers, to show that your debts have been included in a bankruptcy. The credit bureaus should correct any of their errors but you will need to be vigilant and persistent to make sure those errors are corrected. If you don’t get this step right then all the steps after this one are moot.