Credit After Bankruptcy? How Will Bankruptcy Affect Getting Credit
Most people think that filing for a bankruptcy will destroy any chance of them ever buying a car, buying a home, or obtaining credit for any other purposes again. This is absolutely not true. There are two very important reasons why you will be able to obtain credit again. The first reason is that you will have more disposable monthly income once you obtain your discharge in bankruptcy (usually 90 days after filing bankruptcy), and the second reason is that you cannot file for another Chapter 7 Bankruptcy for 8 more years, thus you are a better risk to creditors, because you will be unable to run away from any new debt for the next 8 years.
It is quite simple why filing for a bankruptcy gives you more disposable monthly income. Many people who are about to file for a bankruptcy possess multiple credit cards with combined debt balances ranging from $20,000- $100,000. The minimum monthly payment on these cards usually ranges from $750-$4,000/month. Once you file for a Chapter 7 Bankruptcy, you no longer are obligated to pay those minimum credit card payments, thus you have $750-$4,000 additional spending money each month. This additional income makes you more likely to make any future debt payments due to the fact that you have more disposable income without those previous commitments; therefore you are a better candidate to receive credit.
If you file for a Chapter 7 (Clean Slate) Bankruptcy, you are unable to file another Chapter 7 Bankruptcy for 8 more years. This means that if you accrue anymore debt and you default on your payments, you will have no choice but to pay it back. This makes you a better risk to creditors. Most creditors will lend to someone even only months after their bankruptcy for this very reason. If you cannot file another bankruptcy you will be forced to pay off any debt you accrue in the future, and if you do not you will face garnishments, bank levies, and lawsuits. Therefore, since you no longer have the option to file another bankruptcy for 8 more years, you are in fact a better risk to creditors in the future.
Due to the fact that after filing a bankruptcy you will have more disposable monthly income as mentioned above, combined with the fact that you lose the option to file another bankruptcy for 8 years and are now a better risk to creditors, these creditors will extend you credit. Most car dealerships will allow you to finance a car a day after you get you discharge. This is because you have more money to pay the car payment. Plus if you default on the car payment and the bank repossesses the car, the bank is essentially taking back the security interest in that secured debt (car payment). Once the security interest (car) has been repossessed that difference between the Principal balance you owed on the car payment, and the amount the car sold for at auction (deficiency balance), is actually a unsecured debt. If you filed for a Chapter 7 Bankruptcy, the unsecured deficiency balance debt would be wiped out (discharged), thus if you had already filed for a bankruptcy and you no longer had the ability to do so, you would be a better risk to automobile finance departments, due to the fact that you could no longer wipe out a deficiency balance on a repossession.
Our team of attorneys and trained paralegals have the experience to analyze your financial situation and guide you through the process of whether to file for a bankruptcy. Call today to set up a FREE consultation to see if you qualify for a chapter 7 Bankruptcy.