Effects on Your Credit

Bankruptcy Can Improve Your Credit

A Chapter 7 Bankruptcy will remain on your credit report for 10 years.  BUT it does not hurt your credit that bad.  Most people filing bankruptcy already have bad credit, because there are a lot of delinquent debts on their credit report.  Once they complete a Chapter 7, the debt is removed.  Once the credit score recalculates and sees there is little or no debt, the score will improve.  The credit score will also improve if the person pays their non-discharged debts (cars and houses) and any new debts on time.

A Chapter 13 Bankruptcy will typically remain on your credit report for 7 years from the time of filing.  Like in Chapter 7, it does not affect you badly as long as you use credit wisely after your bankruptcy

When can you buy a house?

You used to be able to buy (finance) a house as soon as your Bankruptcy case was finished.  But then the credit crises hit us and it became harder to qualify to buy a house.  Now you usually have to wait 2 years after your discharge before you can buy or finance a house.

When can you buy a car?

You can buy (finance) a car immediately after your discharge.  But if you do it in the first year or two, you will probably pay a higher interest rate.  There are even some lenders that will provide you auto financing right after your case is filed, because they know that you will most likely receive a discharge and be able to pay them easier.

When can I get a new credit card?

At first, you might think that a person coming out of bankruptcy should shun credit cards forever.  However, using credit cards and paying them on time are one of the most powerful things that can raise your credit score after a bankruptcy.  Also, many people need a credit card if they travel for work.  It is likely that you will get credit card applications in the mail during or immediately after your discharge.  Credit card companies see you as “Fresh Meat.”  They know that you like credit, and they know that any new debt will have to be paid because you cannot file bankruptcy for another 8 years.  They also know that you are more likely to pay because you are probably debt free.

The credit card offers you get will not be the best.  They will be high interest rate, but you will not suffer from this as long as you pay your card off each month.  They might also have an annual fee, or require some kind of security (a secured card).  If you decide to get a few for the purposes of rebuilding your credit, just make sure you pay them off each month so you do not fall back into debt.