At first, it’s a relief—you file bankruptcy, and the creditors stop harassing you. Your
phone stops ringing, you’re no longer afraid to pick up the mail, and the juggling act ends. You can devote your income
to keeping up your living expenses and trying to get your financial life back on track.
But many people who file bankruptcy are worried about what comes next. They’ve heard rumors like,
“You can’t get credit for ten years after you file bankruptcy.”
Naturally, when you’ve just filed bankruptcy, your credit won’t be strong. Of course, your
credit probably wasn’t strong when you were dealing with the crises that forced you to file bankruptcy, so that’s
nothing new. Your bankruptcy will not erase your good credit or make your report blank. Whatever
negative and positive information that was on your report regarding your payment history will remain there. Your accounts
instead of saying "Paid, as agreed," "settled in full," "settled," or "charged off," will read "Discharged in bankruptcy."
Here’s what you can realistically expect after your bankruptcy discharge:
- Unscrupulous creditors will likely flood you with offers of low-balance credit cards to help you “rebuild”
your credit after bankruptcy. Unfortunately, many of these offers come with activation fees and membership
fees that will push you near your credit limit before you’ve ever used the card…and then late charges and over-the-limit
fees will kick in, putting you right back where you started: in debt, and with late payments on your credit. So what can you
do? Choose your new credit accounts with care. There are reputable lenders who will give you a chance to re-establish credit
after bankruptcy. Don’t get so eager that you abandon your better judgment.
- After bankruptcy, you won’t immediately be able to qualify for most conventional mortgages, car
loans, and the like. For most people who file bankruptcy and then pay their bills on time, however, those loans will be within
reach 2-3 years after discharge. It’s not a quick fix, but it’s also a far cry from the ten years many people
have been led to expect.
- You’ll probably pay a higher interest rate for your first few loans or credit accounts—those rates are dependent
on your three-digit credit score, and those scores will be low right after bankruptcy. However, negative items on your credit—even
bankruptcy--have less and less impact as they age. More recent items will carry more weight, so make sure that you keep your
current accounts current.
The bottom line is that if you’re like most bankruptcy petitioners, not much will change right after
your discharge. Your credit was probably weak before you filed bankruptcy, and it will be weak immediately
after. Without those old debts hanging over your head, though, you’ll have the opportunity to start
to rebuild your credit. In time, if you handle those early accounts carefully, your credit can be stronger than it was before
you filed and you’ll begin to see not only more credit available, but lower interest rates and more favorable terms.