Seymour's Blog

How Does Filing For Bankruptcy Affect My Ability To Get Credit?

There are a lot of myths about filing for bankruptcy and how it affects your credit. I have had clients ask me whether it is true if they will not get credit for 7 years, and whether they will be able to buy a house in the future, and all sorts of other questions concerning supposed negative effects of bankruptcy.

The truth is that in many cases bankruptcy actually helps your credit score, and also helps you get credit in the future. There is actually a group lenders who specifically look for people who have filed for bankruptcy as new customers. The truth is that people who file for bankruptcy can be excellent credit risks in the future. If you just filed for a Chapter 7 bankruptcy, you probably have wiped out all of your unsecured debts. Although you could file a Chapter 13 in the future, you can’t file another Chapter 7 for 8 years.

Therefore, if a creditor gives you credit after you have obtained your Chapter 7 discharge, and for some reason you do not pay them, they can sue you, and get a judgment against you. They then can collect on the judgment because they know that you cannot file another Chapter 7 right away and wipe out the bill.

You should know that a Chapter 7 bankruptcy can remain on your credit report for 10 years. A Chapter 13 bankruptcy can remain on your credit report for 7 years.

The real question is, however, what is the affect of having a bankruptcy on your record? Does it mean you cannot get credit? Of course the answer is no.  It doesn’t mean that at all.

Once you file for bankruptcy, you can probably expect to get lots of credit card offers mailed to you within a short time after you have received your bankruptcy discharge. Credit card companies know that about 2 million people are going to file bankruptcy this year, and they factor that statistic into their annual statistics. If you just filed for bankruptcy, and they send you a credit card, and you don’t pay them in the future, they can get a judgment against you, attach your wages, or put a freeze on your bank account.

Furthermore, two years after receiving a bankruptcy discharge, people are usually eligible to obtain mortgage loans. Many times people who filed for bankruptcy will get the same interest rate on their mortgage as people who haven’t filed bankruptcy. Once you get a bankruptcy discharge and wipe out your unsecured debts, your debt to income ratio is reduced, and that is usually a good thing when you apply for a mortgage.

The mortgage company will also look at whether or not you can make a decent sized down payment, and whether you have steady income coming in from employment or other sources. These factors are probably more important to mortgage companies than the fact that you filed bankruptcy a couple of years ago.

Don’t be surprised if you start to get all sorts of applications for credit after you have filed for bankruptcy. Be as selective as you can in accepting credit in the future, and make sure you pay your debts on time in the future, so that you can reestablish your credit as quickly as legally possible.

If you have filed for bankruptcy and need help in reestablishing your credit, feel free to contact us, and we can give you ideas that could be helpful to your specific situation.