Credit Report FAQ
Frequently asked questions about credit and credit reporting after filing bankruptcy.
Yes! For many people, Bankruptcy is the first step to ending the cycle of penalties and missed payments and building strong credit. Most of our clients receive a flood of new credit card offers after their Bankruptcy, since companies know that your prior debts are discharged and you cannot file for Bankruptcy again, for a certain period of time. Although credit is available, we advise our clients to pay attention to the interest rate and terms of the offers they receive, since some lenders will offer higher interest rates because of your recent bankruptcy. We support our clients in rebuilding their credit with simple steps that lead to excellent credit after Bankruptcy. Slow and steady is the key to successfully rebuilding.
After Bankruptcy, your credit report will state that you were in a Chapter 7 or Chapter 13 Bankruptcy for up to 10 years. But your amounts owed are wiped clean. Accounts that were included in your Bankruptcy are closed but still can be reported as having been included in bankruptcy. This reporting lasts up to seven years after filing for Chapter 13 bankruptcy and up to 10 years after filing for Chapter 7 bankruptcy.
Our clients tell us that after completing bankruptcy, their credit score initially drops but then rises, while the bankruptcy is still being reported. Remember, that’s not all that determines your credit score. In fact, 30% of the total FICO credit score is based on amounts owed or “credit utilization.” This is the percentage of available credit to you that has been used/borrowed. At the end of the Bankruptcy process, you will be discharged of your debts and given a “clean start,” meaning no credit and no debt! As soon as you are approved for credit after Bankruptcy, this part of your score can improve fairly quickly.
Absolutely. Many of our clients tell us that lenders are eager to offer them new credit, for several reasons.
- First, auto lenders know that our clients often have more available income after Bankruptcy, since they no longer have to make payments on the past debts that were discharged. More available income means a greater ability to make car payments.
- Second, auto lenders can look past Bankruptcy, since they are protected against default by keeping a security interest in the car until it is paid off. That means that if you stop paying or go into Bankruptcy in the future, their “secured” debt gets better treatment than regular credit card debt.
- Third, our clients tell us that lenders in general do not view Bankruptcy as negatively as they did in the past. This could be due to changes in the Bankruptcy code, or a change in the economy that makes credit more available, but our clients report that buying a car after bankruptcy is usually not a problem.
If you do decide to finance a car after your bankruptcy, we recommend that our clients be mindful of the interest rate that is offered. Even though credit is available, some lenders will view the Bankruptcy as a negative mark and require a high interest rate on the loan. Interest is a potential killer and variable interest can often cause your payments to balloon, putting you back in the same situation from which you had just escaped.
Slow, steady, and careful usage of credit is the key to success and to staying out of trouble. Read the terms (of what is offered) carefully and ask questions. If you must finance, shop around for the best terms.
If you are being pressured or rushed into any kind of purchase or loan, then that is not the place for you.
We typically advise our clients to wait until after their bankruptcy case has closed and their debts have been discharged. Chapter 7 cases are often complete in about three months. Chapter 13 repayment plans must be completed before the case is closed, which can last up to five years. Clients that need to purchase a car before their plan is complete must call our office so we can request permission from the court.
No problem. Feel free to contact us for a free consultation. Our attorneys have decades of experience in navigating these issues. We are always happy to help.