After a bankruptcy: restoring credit and limits on filing again

Q: I filed Chapter 7 bankruptcy almost three years ago. Now that I am married and hold a good paying job, how much would it help my credit score and rating if I were to repay the debts listed in the bankruptcy?
J.M., via e-mail

A: Repaying debts may gain some goodwill from your creditors and you may feel better about yourself personally, but your credit score won't budge.

"Going back and repaying any discharged debts will not help repair the damage," says Ryan Sjoblad, public relations manager for, a division of Fair Isaac Corp. That Minneapolis company developed credit scoring as a way to mathematically massage all the data in a credit report.

Mr. Sjoblad says the best thing you can do is to start rebuilding your credit. First, check your credit reports from all three credit bureaus to make sure that everything included in the bankruptcy is listed as such. If you don't currently have any credit, you should consider starting out with a secured credit card or a retail charge card. Pay all your bills promptly, and keep all the balances low. That, and the effect of time, will eventually help improve your score.

The further you get away from the event, the lesser effect it will have on your credit score, says Sjoblad. The website has additional information and tools to help people improve their score.

Q: I filed a Chapter 7 bankruptcy petition in 1997. How long must I wait before I can file another Chapter 7 or Chapter 13?
w.j., via e-mail

A: No more than once every six years, says Michael Furois, a certified financial planner in Phoenix.

Credit bureaus publish bankruptcy actions for 10 years from the date of filing, though that black mark fades over time in the eyes of creditors. Mr. Furois points to a study by the Credit Research Center at Purdue University, which found that about one-third of consumers who filed for bankruptcy had obtained lines of credit within three years of filing. About half had obtained credit within five years.

A Chapter 7 petition is for a liquidation of all assets and debts. With Chapter 13, the petitioner reorganizes and attempts to pay back creditors more.

Q: Can I use part of a rather large IRA to invest in a vacation home? If so, what procedures must I follow prior to and after such a transaction, both before and after retirement?
F.B., Idaho

A: Acquiring a vacation property without penalty, whether present or future, within an IRA is simply not allowed, says Helga Cuthbert, a certified financial planner in Decatur, Ga.

But she says that some real estate transactions are allowed. You can invest in certain types of real estate such as raw land, commercial, and rental property within your IRA as long as it's not acquired for personal use.

If you're investing in real estate, Ms. Cuthbert says that the IRA should be self-directed. The biggest challenge here will be finding a custodian who will hold the property with reasonable custodial fees and property-brokerage fees.

And if you're age 59-1/2 or older, you can withdraw all or part of the assets from your IRA to purchase a vacation home either prior to or after taking minimum required distributions without penalty. But doing so will result in the distribution being included in your gross income for tax purposes, Cuthbert says.

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