Should I File For Bankruptcy For Credit Card Debt
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In a Nutshell
Written byAttorney Jonathan Petts.
People file for bankruptcy relief for many reasons. In most cases, the person experienced a financial hardship that resulted in the inability to repay their debts. If you are struggling with debt you can’t pay, a Chapter 7 bankruptcy case might be an affordable way for you to get out of debt.
Taking Out A Loan After Bankruptcy
Traditional loans will also be tough to qualify for directly after bankruptcy. Its unlikely that you can get an unsecured personal loan at a low interest rate. Higher rates mean a higher risk of facing financial hardship again. And you want to avoid being forced to file for bankruptcy twice.
In addition, while you may be able to find financing on secured loans, such as an auto loan for people with bad credit, this usually isnt advisable directly after you complete your filing. The interest rates will be high, which drives up the cost of your purchase and also increases your risk.
Instead, you should consider loans that are specifically designed to help you build credit. These are known as . These types of loans usually dont require a credit check, meaning you wont even ding your score with a hard inquiry.
Theyre small loans that simply allow you to build a positive payment history. This will help you recover faster, so you can qualify for traditional loans.
What Happens After My Bankruptcy Requirements Are Completed
When you complete all your duties in bankruptcy, you will obtain a type of discharge, which is the official certification of how it was completed.
A record of your bankruptcy will remain on your for several years after your discharge.
Apart from the note of your past bankruptcy, your credit status will be clear. It will be as if you had never had credit. Like a young adult starting independent life, you will have to earn the trust of creditors from the ground up.
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If You’re Sure You Won’t Get Into Debt Again
If you trust yourself not to rack up credit card debt you can’t repay, you can start rebuilding your credit score as soon as you’re done filing for bankruptcy. Your FICO score can affect your ability to acquire loans, get approved for an apartment rental and even find a job. The sooner you can reconstruct your credit, the better.
Getting a credit card after bankruptcy might seem counterintuitive, but it is the quickest and easiest way to improve your credit. Lenders want to see you can spend responsibly and make timely repayments. A credit card is a great tool for demonstrating your trustworthiness.
When you get your credit card, proceed with caution. You should use it regularly, but you need to be very careful to spend only what you can afford. Pay off purchases quickly and avoid carrying a balance month to month. When building credit, a good strategy is to use the card only for items you need to buy anyway. Groceries and gas are good examples. Pay for them with your credit card and pay them off before the grace period ends.
How Credit Building Loans Work
You wont get the money you receive from a credit building loan upfront. Instead, you receive it once you complete the installment payments on the loan. So, for example, if you take out a $1,000 loan with a 12-month term, youll receive $1,000 minus the interest charges once you make 12 payments.
Some credit builder loans like Self allow you to earn interest back while you repay the loan. They do this by investing the money in an interest-earning Certificate of Deposit . The interest you earn goes a long way to offset the interest charges on the loan. This means you get more of that $1,000 back at the end of the term.
Selfs secured credit card uses your CD as the deposit
If you decide to get a credit builder loan through Self, you can also get a secured credit card. Self offers an option to get a secured credit card once you have $100 or more in savings progress on your credit builder loan.
This will give you an additional account that you can use to build a positive payment history. In this case, you also get a revolving credit limit, which allows you to maintain a good credit utilization ratio. As long as you pay off any charges in full every month, you can build credit quickly.
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Secured Credit Cards And Bankruptcy
Upsolve is a nonprofit tool that helps you file bankruptcy for free.Think TurboTax for bankruptcy. Get free education, customer support, and community. Featured in Forbes 4x and funded by institutions like Harvard University so we’ll never ask you for a credit card.Explore our free tool
In a Nutshell
Because bankruptcy gives you the opportunity for a fresh start, itâs only the beginning of your financial journey, not the end. If your credit history is preventing you from getting a credit card, take advantage of secured credit cards as a way to rebuild your credit after bankruptcy.
Written byAttorney Alexander Hernandez.
When you file for bankruptcy, youâll be required to fill out forms in which you must list all of your assets and liabilities. Most of your unsecured debt will be eliminated during a successful bankruptcy and you may be able to keep your secured assets post-bankruptcy, including secured credit cards. Continue reading to learn more about how secured credit cards work and how maintaining secured credit cards could help improve your credit score after filing for bankruptcy.
Your Credit Report After Bankruptcy
For the years following your bankruptcy, monitor your credit reports regularly. Watch for errors and then file disputes. Get help from a who can spot inaccuracies, dispute the errors and coach you toward your best credit score possible.
Lexington Law has helped clients work towards fair and accurate credit scores by leveraging their rights. Weve helped hundreds of thousands of clients remove unfair, inaccurate and unverified accounts from their credit reports.
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Bankruptcy Discharge What Happens Next
If you declare yourself bankrupt, or youre declared bankrupt, youll usually be discharged 12 months from the date the bankruptcy order was made.
The discharge process is automatic and will usually come to an end after a year. However, if youve not cooperated and been completely honest with your official receiver or trustee, or youve not acted responsibly during your bankruptcy, it might not end at this time. This is known as a delayed discharge or suspended discharge and can extend your bankruptcy for up to 15 years.
Once youve been discharged from your bankruptcy, youll be free of some of the financial restrictions imposed by the order, meaning:
- You can now act as a company director, unless there is another reason why you cant hold that position.
- You no longer have to worry about any assets, pay rises, bonus payments or other windfalls being used to pay creditors. An exception to this is any payment protection insurance mis-selling compensation payments, from claims made before your bankruptcy.
Its worth noting that you wont be sent confirmation of your bankruptcy discharge, but you can get proof of your discharge by getting a free confirmation letter by calling discharge queries on 0300 678 0015.
Here are some useful next steps for after bankruptcy:
How Soon After Bankruptcy Can I Get A Credit Card
Being discharged from bankruptcy generally marks the end of your bankruptcy procedure. However, your bankruptcy stays on your credit record for six or seven years from the date of your discharge . This will affect your ability to get loans and other kinds of credit in the future.
However, once you are discharged you can apply for a credit card immediately. Whether you will be given a credit card, and the type of card is dependent on the financial institutions policies. Generally, it will take one to two years before you can get an unsecured credit card. In the meantime, there are other options.
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Retail Credit Cards Are A Good Option
Retail credit cardsthose offered by stores you shopoften have less strict approval criteria for applicants. Youre more likely to be approved for a closed-loop retail credit card, which is one that doesnt have a network logo like Visa or MasterCard and can only be used in the retail store . These cards don’t have as significant of an impact on your credit scores as co-branded ones, but every little bit counts when you’re rebuilding credit.
The Work Doesnt Stop When You Get A Credit Card
With your new card, you should focus on improving your credit score so you can eventually qualify for better credit cards and get more favorable rates on other types of loans, like car loans, mortgages or student loan payments.
Make sure to pay your bills on time, every month, as thats the single biggest factor affecting your score, accounting for approximately 35% of your FICO credit score. The amount of total credit you use as a percentage of your credit limit also weighs in at 30% of your score, making it a worthy goal to try to keep your low.
You may also want to consider using a program like Experian Boost, a free program which counts your payment behavior from your linked checking account that you use to pay your utility, cell phone and video streaming media plans. Or use it in conjunction with American Express free Score Goals program, which maps out a blueprint of credit-building actions to help you achieve a better credit profile over time.
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Best For Unsecured Credit: Credit One Bank Platinum Visa For Rebuilding Credit
Heres why: The Credit One Bank® Platinum Visa® for Rebuilding Credit is an unsecured card, so theres no need to put down a security deposit.
Cardholders can also receive automatic reviews for a credit limit increase. And youll earn 1% cash back, as statement credit, on eligible gas and grocery purchases, and mobile phone, internet, cable and satellite TV services. Plus, if you apply through Credit Ones site, you can see if you prequalify without affecting your credit.
Take note, you may have to pay an annual fee, which will be charged to your account, reducing your initial credit limit. The annual fee is $75 for the first year, $99 thereafter.
Best For Avoiding A Credit Check: Opensky Secured Credit Visa Card
Heres why: Theres no credit check necessary for the OpenSky® Secured Credit Visa® Card application process. Instead, your credit limit is determined based on your refundable security deposit, starting at $200. For those focused on credit building after bankruptcy, this benefit is especially enticing, because a hard credit check can ding your credit a bit.
Read our review of the OpenSky® Secured Credit Visa® Card for more thoughts on this option.
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A Question From A Debtcom Reader
Question: Im in the process of declaring bankruptcy. I actually consulted Debt.com and got hooked up with a company thats helping me.
Im relieved, because I was so far in debt after a motorcycle accident. Actually, I was in trouble even before. I already owed $9,000 on my credit cards and was a year from paying off the bike when I ran up big medical bills and couldnt work.
If Ive learned anything from this awful experience, its to be smarter about my money. Ive already been told my credit score is going to take a big hit, so how do I rebuild my credit? More importantly, how do I get a credit card back so I can not only rebuild my credit but also just live?
Ivan in California
Should I Get A Secured Credit Card After Bankruptcy
Oct 7, 2021Bankruptcy
After a bankruptcy, its not only a good idea to get a credit card to start rebuilding your credit, its absolutely necessary. Unless you start rebuilding your credit, it will be difficult, if not costly, to obtain auto loans, rent an apartment or house, or eventually get a mortgage.
When you first obtain a bankruptcy discharge, your credit score is going to take a hit, however, if youre like most bankruptcy filers, your credit was not that good when you filed for bankruptcy. If you had any late payments and collections before the bankruptcy, your FICO score was already suffering.
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Rebuilding Credit After Bankruptcy
- Until youre discharged from your bankruptcy, you will be unable legally to borrow more than £500 from any lender
- Once youre discharged, theres no legal limit on the amount you can borrow, but you may still be seen as a credit risk by lenders.
- You might find it difficult to get accepted for loans, credit cards and overdrafts for the six years that the bankruptcy is visible on your credit file.
- Some lenders will refuse to lend to you altogether
- Before you apply for any form of credit after bankruptcy, you should make sure your discharge has been included on your credit report
- You should also check your credit report for any mistakes and get these corrected by telling the relevant credit referencing agency to get them corrected.
What To Consider When Selecting A Secured Credit Card
When youâre researching for the best secured credit card, start with your local bank or credit union if you already have an account opened with them. Credit unions generally offer secured credit cards for customers. If you’re receiving offers from lesser-known lenders, investing in a few minutes of research can save you lots of time, money, and headaches.
You can research lenders on the Better Business Bureau or your state attorney generalâs website which will have sections devoted to consumers and finance. Each of these platforms will allow you to access the complaint history of companies youâre interested in working with so that you can spot any potential scams before you commit. Compare the different lenders for the best interest rates, including intro rates, and those that require small initial deposits, so you donât have to wait too long to start rebuilding your credit. Some lenders will even offer perks such as cashback, rewards program, or even waiver of annual fees.
For example, the OpenSky card is a secured card that offers a refundable security deposit, so when you close your account, your depositâwhich is guaranteed by the FDICâwill be returned to you. OpenSky doesnât require a credit check either, so you can start building your credit immediately. The Capital One Secured Mastercard requires a minimum security deposit of either $49, $99, or $200. Youâll be automatically considered for a higher credit line after six months.
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How Soon After Bankruptcy Should You Apply For A Credit Card
You can apply for a credit card right after bankruptcy, but youll need to be realistic about the type of credit card you can qualify for. Generally speaking, youll have a better shot at getting approved for a credit card for bad credit after a bankruptcy. You may also want to consider a secured credit card that requires a cash deposit as collateral since this card is considerably easier to get approved for.
Can I Get A Credit Card After Bankruptcy
Through April 20, 2022, Experian, TransUnion and Equifax will offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com to help you protect your financial health during the sudden and unprecedented hardship caused by COVID-19.
At Experian, one of our priorities is consumer credit and finance education. This post may contain links and references to one or more of our partners, but we provide an objective view to help you make the best decisions. For more information, see our .
In this article:
You may not qualify for a conventional credit card soon after filing for bankruptcy, but seeking out cards designed for users with poor credit can be a great way to start rebuilding your credit.
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Heres How Soon After Bankruptcy You Can Get A Credit Card:
- Secured credit card: After bankruptcy discharged
These cards require a refundable security deposit, usually at least $200, which doubles as your credit limit. Because youre putting up your own money, your approval chances are high.
The Capital One Platinum Secureds only bankruptcy requirement is that the case must be fully discharged. Some cards, like OpenSky, dont even check your credit report when you apply, so theyre great for post-bankruptcy credit improvement.
- Unsecured credit cards for bad credit: After bankruptcy discharged
One example is the . Credit One Bank says a discharged bankruptcy wont hurt your approval chances, but could lead to a lower credit limit and a higher annual fee.
- Immediately
If a friend or family member makes you an authorized user on their credit card account, that account will be added to your credit reports, and youll benefit if the main account holder pays the bill on time every month. If your friend or relative allows it, you will also get a card with your name on it to use for purchases.
After your bankruptcy is discharged, you may still have difficulty getting approved for a new credit card at first. Some issuers may deny your application simply because theres a recent bankruptcy on your credit report. However, some lenders might be more lenient. Thats because of rules that restrict when you can file for a second bankruptcy, making you a low risk of filing for bankruptcy again.
