Wednesday, October 28, 2009

Obtaining Credit After Filing for Bankruptcy

Here at Shenwick & Associates, our clients often ask us how filing for bankruptcy will affect their financial future, and if they will ever be able to obtain credit again. It's important to note that your bankruptcy filing will remain on your credit report for seven to 10 years. This means that any credit company or potential lender looking to determine your creditworthiness during that period will be able to see that you filed for bankruptcy, which will affect your ability to obtain credit.

While filing for bankruptcy may make it more difficult to get some types of credit, such as a car or home equity loan, many clients tell us that within a few weeks of filing for bankruptcy, they received numerous credit card offers in the mail. At first, this seems counterintuitive; why would they solicit my business after I just filed to have my credit card debt discharged? But keep in mind that after a bankruptcy filing, you have a significantly lighter debt load to manage, and if all of your debts were dischargeable, you are essentially debt-free. Congratulations, and welcome to your fresh start! A word of caution is warranted, however, when deciding how to manage your personal finances post-bankruptcy.

Some credit card companies may be willing to take a risk on you with the hope that with fewer debts to pay, as well as your inability to file for Chapter 7 bankruptcy protection for another eight years, you will be able to pay them each month. But it is important to note that the cards offered may not be the kinds of cards you've been used to. Often, although credit card companies may be eager to sign you up, bear in mind that you may be considered more of a risk, and thus the cards offered to you may have a much higher interest rate and/or a much lower credit limit.

Nonetheless, for clients looking to rehabilitate or rebuild their credit after filing for bankruptcy, these cards may provide a way to do so. Bear in mind the importance of careful budgeting and financial management to ensure that any use of credit is in your long-term best interests. Being debt-free after bankruptcy can be a wonderful thing, but don't let the fresh start go to your head!

For more information about Chapter 7 personal bankruptcy and managing your financial future, please contact Jim Shenwick.

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