Filing for bankruptcy can have a large impact on your financial future.
For one, it helps get you out of debt, avoid delinquent payments, and prevent repossessions. Those are all huge when it comes to your recovery.
However, it can also have a temporary negative effect on your credit score and lending ability. While this can have an impact, it’s more minor than you might think.
Credit Report
When you file for Chapter 7 bankruptcy, it can stay on your credit report for up to 10 years after filing for bankruptcy. Under Chapter 13 bankruptcy – where you repay a portion of your debt through your court-approved repayment plan – it can stay on your report for up to 7 years.
Credit Score
While having a bankruptcy show up on your credit report for up to a decade can be a nuisance, what matters is your credit score. The good news is, this will recover more quickly than your credit report. In general, you can improve your credit score within 18 to 24 months after filing for bankruptcy. Realistic expectations are to be in the Fair range within 18 months, and then it will take longer to get into the Good and above ranges.
However, if having Fair credit doesn’t sound like good news, think of the alternative. If you didn’t file for bankruptcy, you’d likely be dealing with large amounts of debt, delinquent payments, and maybe even repossessions. Those could have a more negative – and longer-lasting – impact on your credit score than filing for bankruptcy.
The key is taking the right steps after bankruptcy to start working towards improving your score. This can include making on-time payments and trying to establish new lines of credit.
Access to Credit
This might sound like ridiculous advice after filing for bankruptcy, but one of the best ways to improve your credit score is to open new lines of credit. This will show future lenders that you can secure credit.
However, it can be difficult to get more credit after bankruptcy, and it’s essential to be disciplined with the lines of credit you do have. But don’t fret – the lending industry almost immediately upon filing will send you offers new fresh-start credit cards and car loans.
First, you may try to get a new credit card. If you qualify, it will be for a low limit. But it’s better than nothing. With your new card, you need to make small purchases and pay off the balance on time. DO NOT rack up a bunch of new debt immediately coming off of bankruptcy.
If you don’t qualify for a new card – which is entirely possible – you can still make positive moves by asking a friend or family member to add you to their line of credit.
Car Loans
One line of credit you might be able to secure soon after bankruptcy is a car loan. It can be difficult to secure financing, but there are ways to do it.
For one, if you save enough money for a downpayment, this can improve your chances of securing a loan.
Then, you should look for a place that is willing to work with low credit scores, or that offers in-house financing. You may have better approval odds at these locations, but be prepared, you will likely face a high-interest rate.
Home Loan
You might think your dream of owning a home is lost after filing for bankruptcy, but that isn’t true. After just two years from your bankruptcy filing date, you can be eligible for an FHA home loan.
However, you still need to prove you have a good work history, a qualifying income, and a down payment to secure the financing.
Let Us Help You
Filing for bankruptcy does not have a permanent impact on your credit score and lending chances. Let our lawyers at The Law Offices of Alexzander C.J. Adams, P.C. review your options and help you determine how to best secure your financial future. We work for you, the people, and not institutions. Contact us for a free case evaluation, or no-obligation consultation. We are dedicated to helping you overcome this small bump in the road and assisting you to get on with your life.
