Will I Be Able To Get Credit Again If I File Bankruptcy?
It may seem like a crazy question to ask when you are filing a bankruptcy case; however, the fear of never being able to qualify for credit after filing bankruptcy is a common concern for many people. However, credit is part of our everyday life. It is almost necessary to use credit in today’s world. Most people don’t have the cash to purchase vehicle or home without applying for a loan. Unfortunately, some people believe once they file a bankruptcy case, they will never be able to qualify for a credit card or loan again. Thankfully, this is simply not true.
Credit Is Not a Bad Thing
Credit is not always a bad thing. The key is to manage credit wisely after filing bankruptcy. As part of your bankruptcy case, you will complete a credit counseling course and a money management course. These courses can teach you valuable lessons about managing credit after bankruptcy. The courses also provide helpful tools and tips that you can use as you rebuild your credit rating after bankruptcy.
What Does a Bankruptcy Filing Do to My Credit Rating?
It is true that filing a Chapter 7 or Chapter 13 bankruptcy case will cause a temporary decrease in your credit rating. Chapter 7 bankruptcy cases remain on your credit report for ten years, and Chapter 13 bankruptcy cases remain on your credit report for seven years. However, your credit rating will begin to improve after you complete your bankruptcy case.
Most people who file for bankruptcy relief have already damaged their credit rating with over-the-limit notices, late payments, and collection accounts. The positive outcome of a bankruptcy filing is that it will help you improve your credit rating much faster than if you try to negotiate and settle your debts yourself or you simply ignore your financial problems.
When you complete your bankruptcy case, the court will issue a bankruptcy discharge. The bankruptcy discharge not only relieves you from the personal liability for the discharged debts but it also prevents creditors from continuing collection actions for the discharged accounts. This prohibition on pursuing collection efforts includes the continued reports of negative information on your credit report.
Once your creditors stop filing negative information on your credit report, your credit rating will begin to improve. In most cases, you will notice an improvement in your credit rating within a year after filing your bankruptcy case, provided you continue to make all other debt payments (i.e. mortgage, car loan, etc.) on time.
When Can I Apply for New Credit?
You will probably begin receiving credit offers shortly after your bankruptcy case is closed. During your bankruptcy, you are forbidden to incur new debt without court approval. However, once your bankruptcy case is closed, you are free to apply for new credit at your discretion. Before rushing into new credit, take the time to evaluate your current financial situation and learn to live within a weekly or monthly budget. Preparing and maintaining a personal budget helps you see problems before they become too big to handle. Budgets also allow you to see how credit can wisely fit into your finances.
It is a good idea to begin wading into new credit after bankruptcy with a secured credit card. A secured credit card works just like any other credit card; however, the company requires you to place a security deposit to “secure” payment of charges. Before applying for a secured credit card, make sure the company reports your information to the credit bureaus. As you use the secured credit card and make timely payments, the good information reported to the credit bureaus will help you improve your credit rating.
As your credit rating continues to improve, you may consider adding additional types of credit to help raise your credit score even more. A secured loan (i.e. furniture loan or car loan), a revolving credit account, and a personal loan will help improve your credit score but only if you make all payments on time and don’t abuse the credit limit. Before applying for any new credit, check your budget and make sure you can afford to make the monthly payments. If you cannot comfortably fit the credit payments into your budget, do not apply for the loan or credit account.
Am I Ready for New Credit After Bankruptcy?
The choice to incur new debt after bankruptcy is a personal choice. There is not a magical date when you should begin incurring new debt. The key is to ensure you can make all payments on time and you have emergency savings to cover payments for several months in the event of an illness or unemployment.
For more information about how filing a bankruptcy case can improve your credit rating, seek the advice of an experienced attorney. He or she can help you decide if filing for bankruptcy relief is your best option for resolving your debt problem.