Rebuilding Your Credit During the 13 Bankruptcy Process

Can you Work on Credit While in Bankruptcy?

Yes, you can rebuild your credit during the bankruptcy process. Whether you have filed Chapter 7 or Chapter 13 doesn’t matter. There are ways to start the rebuilding process. It all depends on you.

Type of Bankruptcy: Assessing the Starting Point

Everyone starts in a different place either, before, during, or after bankruptcy. For this reason, knowing when you can start applying for a credit card can jump-start the process of planning. The sections below discuss what someone under their respective chapter of bankruptcy can do and what is generally recommended.

Chapter 13 Bankruptcy debtors must obtain approval by a bankruptcy judge, through a trustee, to establish new credit. Only the bankruptcy judge can issue an order granting you the right to open a credit line. Some people think the bankruptcy trustee has the authority over this matter, but that is simply not true. The trustee has the right to give his input for the judge’s consideration. But ultimately the judge will make the determination.

Confirmed Plan

  • After filing a Chapter 13, it is normally advised for you to wait and apply for credit when your Chapter 13 plan is confirmed, by the Bankruptcy Court.
  • Prior to Chapter 13 confirmation, the court will have many questions as to why an unsecured line of credit would be necessary. Don’t get me wrong, there may be circumstances where an unsecured line of credit is fully justified; however, after confirmation, it becomes much easier to convince the court why you do need an additional line of credit. One reason is, you have demonstrated your budgeting and financial abilities to both the Bankruptcy Court and the Trustee, over the course of the Chapter 13 Plan.

Exception for Example

  • Let’s say that you own your own business, and an opportunity comes up for you to expand your business. The only way to do this is by signing a lucrative contract. Therefore, you must enter into a credit agreement to obtain the necessary, working, capital to expand the business
  • For someone is a Chapter 13 Plan, this is a good reason to file a motion with the court, seeking to open an additional line of credit.
  • Of course, the new line of credit would not be subject to the protections afforded in your Chapter 13 bankruptcy.

Make the Smart Financial Choice

All in all, opening lines of credit while your bankruptcy case is pending is a great way to start planning towards the future. However, it is imperative you make sure that this is the best move for you to make.

If you decide to wait until after you receive your bankruptcy discharge, things will be much easier, so there is no rush. More and more creditors are learning that people coming out of bankruptcy need access to capital, and these creditors are filling the void quickly. As always, do your homework and get the best deal on the best card for you. For more information about finding the best card click on the link for our blog on, What to Look for in A Credit Card: Research Twice, Inquire Once.