Facing bankruptcy, a common worry is that it will be nearly impossible to re-establish credit after bankruptcy. Contrary to what many people believe, your credit score can recover and rise again after a bankruptcy. Furthermore, a bankruptcy will not stay on a person's credit report or affect their credit forever. A chapter 13 bankruptcy stays on a person's credit report for 7 years, while a chapter 7 bankruptcy stays on the report for 10 years after filing. While this may seem like a very long time, it is worthwhile to remember that in determining one's credit score, new information is weighted more heavily than older information. In other words, two or three years of regular, monthly payments on a credit card without ever being late, can cause a person's credit score to rise despite a past bankruptcy filing.
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However, one must always realize that a credit score does not necessarily mean easy access to loans since the current lending climate is more important in this regard than any other single factor. In 2005 it seemed anyone with a pulse could obtain 100% financing for a 4,000 square foot McMansion in California. Today, someone with a 750 credit score and twenty percent equity in a Bay Area home may find it difficult if not impossible to refinance. Why? The answer has nothing to do with that person's credit and everything to do with the reaction by mortgage lenders to the fall out from their own previous recklessness in extending credit.
Apart from credit scores, however, bankruptcy certainly has its benefits. For one, all the harassing calls from creditors must immediately stop. Our bankruptcy attorneys serving Fremont and the San Francisco Bay Area can explain what your options are and how much debt you may be able to discharge through bankruptcy. Additionally, an experienced bankruptcy attorney can help explain strategies to re-establish and improve credit after filing bankruptcy. While for some time it may be more difficult to get credit cards or other loans, bankruptcy can provide a fresh financial start and actually improve a person's credit after bankruptcy in the long run. Most people still can get a secured credit card after a bankruptcy, which is one of the best ways to begin to re-establish credit.
When facing a mountain of debt, getting a discharge through a Chapter 7 bankruptcy can go a long way towards getting a person back on track to financial freedom. However, if you cannot qualify for Chapter 7, either because you have sufficient income after monthly living expenses to pay some of your debt, or because you have more assets than you would be allowed to keep in a Chapter 7, then Chapter 13 may be a viable option. Instead of a relatively quick discharge of debt, Chapter 13 offers a partial or total discharge of remaining debt, but only after a payment plan is completed by the debtor.
Once your bankruptcy case has closed with a discharge, your credit can almost certainly go nowhere but up. The financial management courses mandated by the 2005 Bankruptcy Act (BAPCPA) generally advise debtors of two methods for re-establishing credit after bankruptcy: Obtain a secured credit card, as described above, or purchase a used car from a used car lot that will finance nearly anyone. Additionally, if an auto loan is reaffirmed in a Chapter 7 bankruptcy, then the lender will usually report timely payments to the three credit reporting agencies (CRAs) going forward.
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