What Kinds Of Credit Are Available After A Bankruptcy?
Various forms of credit are available after bankruptcy, including unsecured credit cards, secured credit cards, automobile financing and home financing. In addition, in order to rebuild your credit, it is a good idea to seek other sources of credit such as gas credit cards, store credit cards, and secured credit cards.
When Will I Be Able To Get A Credit Card?
You may receive applications for credit from the very same creditors that you discharged in bankruptcy, often within six months of your discharge.
Many of my clients obtain credit cards within 6-12 months after their bankruptcy is discharged. Some of them report that they receive new credit applications from the very same creditors they are discharging while they are still in bankruptcy!
In addition to unsecured credit cards, secured credit cards are available immediately after your bankruptcy is over.
Why Is Credit Available After A Bankruptcy?
A typical Chapter 7 Bankruptcy takes approximately three and a half months from the time the petition is filed until your debts are discharged. Once your debts are discharged, you have a much lower debt load. In addition, you cannot discharge your new debts in a Chapter 7 for eight years from the date you filed. So, even though you filed a Chapter 7 Bankruptcy, some creditors view you as a good credit risk and make credit available.
When Will I Be Able To Finance A Car?
Automobile financing is generally available immediately after you receive your discharge, but interest rates for the first year tend to be high. After a year, rates go down significantly and continue to improve as time passes.
A Chapter 13 Bankruptcy – which is typically used to pay back debts - such as past due mortgage payments and taxes – usually lasts from 36 to 60 months. Even though you are in an active bankruptcy, you may be able to finance a vehicle after the confirmation of your Chapter 13 Plan
When Can I Purchase A Home Or Refinance My Current Mortgage?
Some mortgage credit is available immediately after you receive your discharge, but a large deposit may be required. Two years after your discharge, your may qualify for the Federal Housing Administration post-bankruptcy mortgage program which finances home mortgages with as little as 3.5% down, and at reasonable rates.
In Chapter 13 Bankruptcy, some clients are able to refinance their homes while they are still in bankruptcy, provided that they have remained current with their mortgage and trustee payments for at least a year. As with all mortgages, you must be able to otherwise qualify for a purchase or refinance.
Two Words Of Caution:
1. Once You Have Filed Your Bankruptcy – Stay Current !
Once you have completed your bankruptcy, it is extremely important that you remain current on bills you continue to pay, such as rent or mortgage payments, automobile payments, cell phone bills, utilities, etc. One purpose of bankruptcy is to “seal off” your past bad credit and give you a fresh start. Your credit report will show that you discharged your debts in bankruptcy and will show how you are dealing with your remaining payments after your bankruptcy. So, it is important that you make your post-bankruptcy payments on time. If you don’t, you will postpone your ability to obtain new credit, not because of your bankruptcy, but because you are late with payments that you are required to make.
2. Don’t Fall Into The Credit Trap!
Most of my clients fall into debt because of some crisis in their life, such as losing their job, becoming ill or getting divorced. Nonetheless, it is important to be cautious and not to fall into the credit trap.
Once your bankruptcy is over, it is a good time to change the way you deal with credit. While it may be important to have some credit, such as credit cards, your post bankruptcy period is a good time to transition into the use of debit cards. The money that you were paying before your bankruptcy to pay your monthly credit card bills can now be used to pay for things as you go. In the long run, most consumers can save thousands of dollars simply by using debit cards to pay as they go. Remember, there is no interest charged when you use a debit card!
Having a Sound Strategy is Important
Generally, after your bankruptcy is discharged, you should apply for a limited number of credit cards. As you accumulate credit cards, you should use them intelligently. You should pay off your entire balance when you receive the bill. Don’t fall into the trap of getting into a “payment plan” again. After all, that is what led to your problems in the first place. While it is good to have credit for emergencies, it is important to start dealing with credit differently.