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Filing Bankruptcy - The Credit Concerns

If your debt is so large that you’re considering bankruptcy, you might want to first learn how filing for bankruptcy—no matter which type—will affect your credit score and the ability to receive additional credit.


Remember, you must work with a credit counseling agency before filing bankruptcy, so if you have any questions regarding your credit score and how it will be affected, you can always ask your agent.


Read more on credit issues and how to repair your credit in the short and long run.


Your Credit After Filing Bankruptcy


Through bankruptcy you can have all or part of your debt discharged, thus eliminating your responsibility to pay. A successful Chapter 7 bankruptcy discharges your debts, while a successful Chapter 13 bankruptcy reorganizes your debt into a three- to five-year repayment plan. Although bankruptcy offers some relief from your debts that relief comes at a high cost— bankruptcy does major damage to your credit and affects your ability to borrow.


Your credit score is the numeric number assigned to your credit and lets lenders know whether you have a good or bad credit history. The precise impact of bankruptcy on your credit cannot be predicted because the makers of the credit score haven’t assigned bankruptcy a number. But your score will definitely fall.


It’s hard to get around the impact of a low credit score. You’ll most likely be denied for credit cards and loans, especially in the first few years after you file bankruptcy. You might even have trouble buying and renting a home. Many landlords now check credit history as part of their application process, and employers often check credit scores before extending a job offer.


It IS Possible to Get Credit After Bankruptcy


A Chapter 7 bankruptcy will be reported by credit reporting agencies for 10 years, whereas a Chapter 13 bankruptcy will be reported for seven. Creditors are occasionally willing to approve credit after bankruptcy because they know that a huge financial burden has been lifted and you may now be able to make regular payments on any new debt.


They also know that if you filed for Chapter 7 you will not be able to declare Chapter 7 bankruptcy again for eight more years, so, in a weird way you’re less of a credit risk after filing bankruptcy.


Credit can be available to the recently bankrupt—it may just be more expensive than before and available with lower limits.  A secured credit card is usually available post-bankruptcy at lower rates than an unsecured card.


And, remarkably, most people seeking to buy a home can be eligible for a mortgage within two years of filing bankruptcy.


It is important to rebuild your credit quickly after filing for bankruptcy to offset the impact. For more information on improving your life after bankruptcy, read Bouncing Back from Bankruptcy.

Benefits of Debt Consolidation