Fear. It’s usually the overriding emotion for anyone contemplating a bankruptcy.
And one of the most common fears is the concern that someone who files for bankruptcy won’t be able to function in the modern world. After all, so much depends on our credit scores. Car insurance rates. The ability to secure a place to live. Even, sometimes, the ability to get a job.
Fortunately, there’s little to fear. You just need to understand exactly what’s going to happen after bankruptcy.
Bankruptcy usually improves your credit score.
While the bankruptcy itself will serve as a black mark on your credit the black mark generally is not enough to reduce the positives of the discharged debt. Your debt-to-income ratio has plunged dramatically. You are no longer posting accounts in default, or accounts that have been paid late.
Studies show the trend of post-bankruptcy score improvements is rather consistent across the board.
“Researchers at the Federal Reserve Bank of Philadelphia found scores typically plunged in the 18 months before people filed for bankruptcy and rose steadily afterward. The average credit score before someone filed Chapter 7 was 538.2 on Equivax’s 280-to-850 scoring range. By the time filer’s cases were discharged, their average score was 620.3.” –The LA Times
Remember, if your financial life has gotten so out of control that you can’t keep up then your scores are only likely to continue to plummet if you choose to do nothing at all.
You’ll get more credit card offers and car loan offers than you’ll know what to do with.
They will literally start pouring into your mailbox within a week of your discharge. Some of them won’t be very good offers; many will carry high interest rates or other unfavorable terms. But you’ll quickly be disabused of the notion that you’ll never be able to get credit again.
There are several reasons why this happens. For one thing, lenders know you’re not allowed to file bankruptcy again for at least 8 years. You won’t be able to discharge this new loan. Second, your financial picture really has improved. Banks will be scrambling to be the first to offer you the chance to start racking up debt once more.
You probably shouldn’t rush to take them up on these offers; it might be better to enjoy the “no payments” breather for a while. Nevertheless, you’ll get plenty of reassurance which proves if you need credit again in the future, it’s going to be there.
Renting a new place won’t be that hard.
Securing a new mortgage may still represent a challenge, but you won’t be homeless. While some landlords balk at bankruptcy, most don’t. Many are perfectly willing to work with you for all the same reasons credit card companies and car loan companies wish to.
Shop around. Some landlords will treat you like any other renter. Others may require you to pay a larger deposit.
Of course, bankruptcy might well have saved your home from foreclosure; if that’s the case you might just sit tight. Nevertheless, if you have to move you’ll be able to do so.
You’ll have an opportunity to make your credit even stronger.
Bankruptcy really is a fresh start. If you choose to take on new loans just make sure you really can handle the payments; it will be years before you have any recourse if you get in over your head again. Getting a small secured credit card for emergencies offers one road towards strengthening your score. Scouting for a rental property who is willing to report on-time payments to credit bureaus can be another option.
Whatever you do, do it carefully; you don’t want to end up financially over-extended a second time. Still, you’ll have opportunities if you want them, and if you’re diligent you might wake up to find you’ve worked your way all the way up to a solid 800 by the time the bankruptcy leaves your credit report.
Got more questions?
Contact the law offices of Sadek and Cooper to request more information and to start your bankruptcy proceedings. It may be the best decision you ever make.