Answers from a Kansas City Bankruptcy Lawyer
Bankruptcy is an extremely useful tool for erasing the hard times you may have encountered in the past. Whether your struggles stem from overwhelming credit card bills or medical expenses that you did not expect, a Kansas City bankruptcy can help you move forward from a very difficult period in your family’s life.
However, many individuals who are considering filing for Chapter 7 or Chapter 13 often wonder what will happen to their credit in the aftermath of bankruptcy. Though it is easy to think that you will never get credit again, the truth is quite different.
What Will Happen to My Future Credit?
A person’s credit rating is determined by a number of factors, so there is no way to know the exact effect on it by filing for bankruptcy. If your credit rating is high, then it will typically take a significant dip after filing; conversely, if your credit is low, you may not see much of a change. The reality is that most people have poor credit scores already when they decide to file bankruptcy.
One would think that a low credit score can make it difficult to be approved for credit cards, auto loans and mortgages. However, the truth is that credit is an extremely profitable industry, which means you will likely find many lenders that are willing to work with you to open a credit card or loan account. Though they will see that you filed for bankruptcy, they will also know that you were responsible enough to handle your financial problems when they got serious. Additionally, they know after filing bankruptcy, a person cannot file again (one can only file Chapter 7 every eight years, however this rule does not apply to Chapter 13 which is a very different story) for a number of years. This gives them a sense of assurance of the loan.
In fact, we actually advise our clients to be cautious with new loans, as they often receive many offers of credit after bankruptcy.
Building Credit after Bankruptcy
In a Chapter 7 case, your eligible debts are discharged after 90 days, whereas in Chapter 13, they are settled after three to five years. As soon as your case is complete, you can begin rebuilding your credit score.
After the completion of your Chapter 7 or Chapter 13 case, you will have a clean slate from which to build a stronger financial life for yourself. Although your credit may have taken a hit during bankruptcy, your newfound freedom from debts will enable you to start using your income to rebuild your score.
It is natural to want to avoid credit after bankruptcy; however, the only way to build credit is to use it. This can be achieved simply by paying your bills on time every month, and not taking out a larger loan than is necessary and affordable. Good financial planning is essential to rebuilding your credit score, and your Kansas City bankruptcy attorney can work with you to create a budget that helps you stay on track.