Repairing your credit after chapter 11 bankruptcy
Chapter 11 bankruptcy is a type of debt re-organization available to individuals and small business owners or corporations. It is more like chapter 13 bankruptcy but there's a major difference between the two. In chapter 13 bankruptcy, the debtor must be able to repay their debt within 3-5 years. This limitation is not present with Chapter 11. Thus, large business owners generally opt for chapter 11 bankruptcy.
Bankruptcy hurts your credit and lowers your credit score generally by 200-350 points. There are four kinds of bankruptcy (chapter 7, 13, 11, 12) but its effect on your credit score is invariably the same. Bankruptcy has a long lasting negative effect on your credit and your ability to get new credit. However, this does not mean that the corporation cannot repair their credit with time, just like an individual can.
Ways to repair your credit
There are various ways in which you can repair your credit after chapter 11. Some are outlined below.
- Review credit reports – Get copies of your corporation's credit report after the discharge of the bankruptcy case. Review your credit reports carefully and make sure that all of the debts included in the bankruptcy have been listed as "discharged in bankruptcy". If this is not the case, you can dispute the listings with the business credit bureaus.
- Re-affirm loans and mortgages – During the bankruptcy case, remember to reaffirm your loans and mortgages with the creditors and lenders. If you do that once you start making payments, your company's credit history will start building up. This in turn will improve your company's credit score.
- Try getting new credit – Try to get new credit after your bankruptcy gets discharged. With your low credit score you may not qualify for unsecured credit cards for your employees. But, you may be able to apply for a secured business loan.
- Pay existing debts – Make on-time payments on your existing debts and try not to miss the payments. Late payments and missed payments will hurt your credit furthermore. As a result, your credit score will be hit.
- Develop a budget – Along with all the above tactics maintain a budget and stick to it. Avoid spending more and avoid maxing out your corporate expense cards. If you maintain a strict budget, you will be able to use your cards lightly.