One of the biggest misconceptions about bankruptcy is that you're not able to have credit for any number of years after filing; that you have to wait until your Chapter 7 or Chapter 13 is off your credit report to rebuild your credit, buy a car, or even buy a house.
That just isn't true. The purpose of a bankruptcy is to give you a fresh start - and that means going out and living life, not sitting on your hands in penance for years. We want to be able to put the past in the past, and have a productive future.
Yes, A Chapter 7 should appear on your credit report for 10 years, and a Chapter 13 should appear for 7 years. But for many people, the trade off is in getting all the other negative stuff - credit card bills, medical bills in collections, pay day loans - off your credit. By giving yourself a blank slate, when you engage in activities that build credit, you can improve your credit score, instead of just having the old, negative accounts drag you down.
So, how does this work?
First, when your bankruptcy is filed, the automatic stay goes into effect. Because your debts are no longer collectible, those debts should stop reporting on your credit report. Wait a few months after filing your Chapter 13* to see, or wait until after your Chapter 7 discharge.
Second, dispute improperly reporting creditors. Experian, Transunion, and Equifax all have online dispute websites. By filling out a brief form, you can explain why a negative account no longer should be shown on your credit report ("stayed in bankruptcy, not collectible" or "discharged in bankruptcy"). This starts a short process with the credit agency will contact the creditor to verify or dispute your allegation.
And finally, with your cleaned up credit report, build credit. The key here is to be smart - view this as a game, and to win a game learn the rules. You don't need to spend huge sums of money. You certainly shouldn't be carrying balance month to month on any new credit cards. For many debtors, because of the years of abuse their credit reports have suffered, they can see substantial improvements by taking simple steps.
* Whether or not the reporting of debts staying in bankruptcy is a violation of the automatic stay appears to be open to some dispute; however, in my experience, most creditor's don't consider this a hill worth dying on, and will stop reporting once the issue is raised. If you file a dispute and the creditor continues to report, speak with your attorney.
Not all debts are made equal. For many people, they continue to have old, no longer collectable debts harrass them and report on the credit, dragging them down. This is despite the fact there is no longer an enforceable obligation - in other words, any money collected is basically a gift to a debt collector.
The most common situation is debt where the statute of limitations has expired (generally 4 years). Once the creditor has lost its right to sue you, it has no mechanism for collection beyond harrassment. Even a judgment, if the creditor fails to renew it in a timely manner, can lapse into nothingness.
So, how does this matter in bankrutpcy? For most people, it is simple - their discharge will steamroll all their debt, old and new, into non-existance, and make any future attempt to collect illegal. Phone calls, letters, candygrams... whatever. It all has to end. the most important thing is making sure we notify everyone who has a claim, or believes they have a claim, that they are owed money. The Judge doesn't pronounce "speak now or forever hold your peace," but that is essentially what happens.
For other folk, they can use bankruptcy to force their creditors to come forward with proof they are entitled to payment, and eliminate anyone who can't. It's incumbent upon the creditor to file a Proof of Claim demonstrating why they are owed money.
John Oliver did a great segment on this not to long ago, linked to below (warning: its from HBO, so foul language can be used).