Many people do not want to file for bankruptcy. Most do not even want to admit that they are at the point of needing to file for bankruptcy. To many, it is an admission of failure. Financial difficulties are, however, a reality for many individuals. There are many different reasons for our financial difficulties: many have lost their job, some have made bad investments, and others suffered medical problems, while others may just have lived beyond their means. Whatever the reasons, one of the questions faced by individuals who declare bankruptcy is how to get their life back and get new credit. Hence, the questions: Can I apply for new credit cards? Can I still purchase cars on installment? Can I apply for home loans in the future?
A bankruptcy filing will undoubtedly affect an individual’s credit rating. It will stay on your record for 10 years. However, it may not be as devastating as many people may believe it to be.
Many people who are candidates for a bankruptcy filing probably do not have very good credit ratings to begin with. These individuals are already struggling with their existing debts. Many possess multiple credit cards with debt balances typically in the $20,000 to $100,000 range. Some have home mortgage obligations of several hundred thousand dollars more. In almost all instances they already have delinquent payment problems, carry high balances on their credit cards, or are already getting calls from collection agencies for their delinquent accounts. These bankruptcy candidates have no disposable income. Almost all their income has to be set aside to pay off their debts.
In most cases, even without the filing of a bankruptcy, many of these individuals no longer have good credit ratings. Many of them would no longer qualify for new credit based on their current income and the huge mountain of debt they are currently obligated to pay. In fact, for some individuals, it is possible to have a small improvement in their credit score with a bankruptcy filing. This is due to the fact that in a bankruptcy filing high balances are removed, as are late payments or records of unpaid debts. It won’t be a huge increase but considering that the bankruptcy candidate may already have a low credit score to begin with, it won’t fall by much either.
There are good reasons why a bankruptcy filing may, in fact, help an individual obtain credit again after the filing. One reason is because a bankruptcy filing would make available more disposable income to the individual. After the bankruptcy filing, an individual would no longer be obligated to make monthly payments on previous debts already discharged. Hence, more of the individual’s income would be available as disposable. This available income would make one more likely to pay off debts in the future because one now has more disposable income.
When you file for a Chapter 7 bankruptcy, you will be prohibited from filing another Chapter 7 bankruptcy for the next 8 years. This means that if you owe any more debts after bankruptcy filing, you will have to pay off these debts. Should you fail to pay these obligations, the lender will have different options of collecting from you, including the filing of a lawsuits and the garnishing or levying any of your properties. You can no longer seek bankruptcy protection for the next 8 year. It will be easier for the lender to go after your properties. Hence, for a lender you are easier to collect from rather than someone who has never filed bankruptcy before.
Many of us are immigrants to this country. We started out with no credit history when we arrived here in the US. We built up our credit only after we arrived here. We did it before. There is no reason why we cannot slowly build up our credit again. There are many different ways of building up our credit again. Many of us started out with secured credit cards at first. We can do that after bankruptcy. Some of us started with low credit limits or had a friend or relative co-sign for us. We can likewise do that after bankruptcy filing. The point is: a bankruptcy filing does not prevent one from taking the road to getting a good credit again.
Bankruptcy protection is a law given precisely for people who are already in deep financial trouble with no foreseeable way of paying their way out of their debts. The sooner individuals realize the benefits of bankruptcy, the sooner they will seek its protection, and the sooner they can get out of the cycle of debt and start down the road to building up credit again based on a more stable financial base.
Anyway, for individuals who want to build up their credit again after bankruptcy, that road is wide open. However, some individuals may have learned a different lesson from the financial mess they got themselves in. They may, in fact, have learned that with the second chance given to them by a bankruptcy protection, they may be more concerned with how to save rather than thinking about how to get credit and borrow again in the future.
(DISCLAIMER: material presented above is intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Rey Tancinco is a partner at Tancinco Law Offices, a professional corporation with offices in San Francisco, Vallejo, and Manila. The law office website is at: tancinco.weareph.com/old. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at: attyrey@tancinco.com.)
