Rebuilding Bankruptcy Credit in Phoenix
Those considering bankruptcy frequently worry that they will never get credit after a bankruptcy, or that it will be 10 years before they can get credit. Neither is true. Obtaining credit after bankruptcy is easy and strongly recommended.
Can I keep a credit card out of the bankruptcy for use later?
If you owe money on a credit card at the time you file bankruptcy, you must list the card as a debt. Remember, the schedules are filed under penalty of perjury: perjury in connection with your case can lead to denial of discharge of all of your debts. It is also a federal crime. Besides, credit card debt is not something that is worth reaffirming since you will have plenty of new credit card offers after you file your bankruptcy.
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You do not have to list the credit card as a debt in your bankruptcy if you have a zero balance when we file your bankruptcy. Note, however, that they may find out through other means and cancel the card as a precaution, or raise the interest rate on you. American Express is notorious for this.
Even though most credit card companies will allow you to keep their credit card for use after bankruptcy if you agree to reaffirm the balance on the card and enter into a new agreement, signed after the bankruptcy filing – it is often a very bad idea to do this because when you complete your final payment to them on your balance they can cancel your card, raise your interest rate, etc. We never recommend that you reaffirm a credit card unless it is beyond absolutely necessary for business purposes. The decision is up to the creditor, but most creditors want to avoid the loss incurred when the debt is discharged, and want your future business.
Our experience is also that newly discharged debtors are frequently solicited for new cards!
Can I get new credit after bankruptcy?
In today's competitive lending environment, credit is available to everyone, especially the recently bankrupt. It may be more expensive than before in terms of higher interest rates, and available with lower limits, but it will be offered. A secured credit card is usually available post bankruptcy at lower rates than unsecured cards. Secured cards are also better scored on your credit report than unsecured cards. A secured credit card is a prepaid credit card obtained at a bank. You can simply put a sum of money down (i.e. $500) and use the card for up to $500.
Rebuilding credit worthiness after bankruptcy is extremely important and a matter of obtaining a toe-hold in the credit world and treating that credit with respect. Use credit cautiously and pay on time. Use secured credit cards.
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Can I buy a house after filing bankruptcy?
Absolutely! In Arizona, studies show that 18-24 months after a bankruptcy discharge, bankruptcy debtors can qualify for a loan with the same terms as if they had never filed bankruptcy. That means that the lender will be much more interested in your down payment, the stability of your income, and the relationship between the loan payments and your monthly income than your past financial troubles. Remember that your debt to income ratio is now extremely positive after a bankruptcy. Your debt to income ratio is a huge factor in obtaining credit.
Is my credit record ruined by filing bankruptcy?
It depends on how perfect your credit score is prior to the bankruptcy! In my opinion, bankruptcy is no more harmful to your credit score than the financial circumstances that lead to the bankruptcy filing. For example, if you have been through a foreclosure your credit is already worse than it would ever be through a bankruptcy. Not paying on credit cards, or simply having too much debt may all lead to terrible credit scores. I believe it is much more important for your future financial health to look at your net worth (assets minus debts) than at your ability to borrow in the future. Your ability to borrow in the future is easy to re-establish.
Most debtors in bankruptcy proceedings, even those who have never missed a payment, couldn't get new credit from a lender who truly looked at their financial condition. So the fact that there are no negatives on their credit report is only marginally meaningful when looking at the whole picture. Remember the debt to income ratio we discussed earlier. Bankruptcy at least makes all the debt shown in the negative history unenforceable. Objectively, a debtor is a far better credit risk after bankruptcy than before. Subjectively, credit managers are individuals who may not always understand bankruptcy or look beyond its negative aspects; except in our current financial crisis a bankruptcy is very understandable.
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Remember that a bankruptcy is not going to erase the record of your debts listed in your bankruptcy. Credit reporting agencies are within their rights in showing accurate history about your financial affairs. You want to make sure that the bankruptcy discharge also shows on the credit report so that creditors understand that those old creditors have no legal claim remaining. Correct any errors on your credit report.