Credit After Bankruptcy

Debtors worry that they will never get credit after a bankruptcy, or that it will be 10 years before they can get credit. Neither is true.

1. Can I keep a credit card?
2. Can I get new credit?
3. Can I ever buy a home?
4. Is my credit record ruined?

If you owe money on a credit card at the time you file bankruptcy, you must list the card as a debt. Remember, the schedules are filed under penalty of perjury: perjury in connection with your case can lead to denial of discharge of all of your debts. It is also a federal crime.

If you don't owe anything on the card, you don't have to give the credit card company notice of your bankruptcy. Note however that they may find out through other means and cancel the card as a precaution.

Most credit card companies will allow you to keep their credit card for use after bankruptcy if you agree to reaffirm the balance on the card and enter into a new agreement, signed after the bankruptcy filing. The decision is up to the creditor, but most creditors want to avoid the loss incurred when the debt is discharged, and want your future business.

Our experience is also that newly discharged debtors are frequently solicited for new cards!

2. Can I get new credit after bankruptcy?

In today's competitive lending environment, credit is available to the recently bankrupt. It may be more expensive than before, and available with lower limits, but it will offered. A secured credit card is usually available post bankruptcy at lower rates than unsecured cards.

Rebuilding credit worthiness after bankruptcy is a matter of obtaining a toe-hold in the credit world and treating that credit with respect. Use credit cautiously and pay on time.

Before plunging back into the credit world, consider the extent to which easy credit lead to a bankruptcy filing before you sign up for new cards.

• For an eye-opener, use our debt calculator to determine just how long it takes to pay off a credit card by making the minimum payments.
• Understand credit card costs assembled by Consumer Action.
• Avoid credit repair scams.

3. Can I buy a house after filing bankruptcy?

Absolutely. Studies show that 18-24 months after a bankruptcy discharge, debtors can qualify for a loan on the same terms as if they had not filed bankruptcy. That means that the lender will be much more interested in your down payment, the stability of your income, and the relationship between the loan payments and your monthly income than your past financial troubles.

4. Is my credit record ruined by filing bankruptcy?

In my opinion, bankruptcy is no more harmful to your credit record than the financial facts that lead to the bankruptcy filing.

Most debtors in bankruptcy proceedings, even those who have never missed a payment, couldn't get new credit from a lender who looked at their financial condition. So the fact that there are no negatives on their credit report is only marginally meaningful.

Bankruptcy at least makes all the debt shown in the negative history unenforceable. Objectively, a debtor is a far better credit risk after bankruptcy than before. Subjectively, credit managers are individuals who may not understand bankruptcy or look beyond its negative aspects.

Remember that a bankruptcy is not going to remove the fact that you owed money to a creditor listed in your bankruptcy. Credit reporting agencies are within their rights in showing accurate history about your financial affairs. You want to make sure that the bankruptcy discharge also shows on the credit report so that creditors understand that those old creditors have no legal claim remaining. Correct any errors on your credit report.