Repairing Credit After Bankruptcy
The best way to qualify for a credit card post-bankruptcy is to fix your credit. But you can’t do that overnight. It involves conscious changes to shift your financial outlook in the right direction.
One of the main things for getting out of bankruptcy is to consider how your finances are going to be moving forward, says Jerry Buchko, board member of the Association for Financial Counseling and Planning Education. The financial stability lenders look for when they first approve you for credit is also important after bankruptcy, Buchko says.
Here are some steps you can take to improve your credit after bankruptcy:
1. Make sure all discharged debts are cleared from your credit reports
If your credit reports still show delinquent accounts after a bankruptcy discharge, odds are they’re pulling your credit score down.
We often recommend that people who have gone bankrupt request and review a copy of their credit report before applying for new credit, Heck says. Sometimes there are inaccuracies. For example, an account that was included in the bankruptcy may not be reported as such.
Everyone is entitled to a free credit report every year from each of the three bureaus. If you see accounts that should have been reported closed in the bankruptcy, contact the bureau that’s showing the error and get it fixed. Be sure to have your bankruptcy documentation available to confirm any misreporting.
2. Get your noncredit finances in order
3. Build credit
Comparing The Best Credit Cards After Bankruptcy: Refundable Deposit
All three cards require a refundable security deposit.
|Capital One Platinum Secured Credit Card||$49, $99 or $200, refundable|
|OpenSky® Secured Visa® Credit Card||Starting at $200, refundable|
For the Discover it® Secured Credit Card and the OpenSky® Secured Visa® Credit Card, this refundable security deposit also doubles as your line of credit.
For the Capital One Platinum Secured Credit Card, regardless of which deposit you choose, your credit line will start at $200. You’ll also get the option to raise your starting credit limit by paying a higher deposit, up to $1,000.
It’s important to note that the primary goal of these credit cards is to help consumers build or rebuild credit by encouraging responsible spending and repayment habits. After each card’s designated timeframe of paying off your debt in full and on time, you can receive your security deposit back and graduate to an unsecured credit card.
Howard Dvorkin Cpa Answers
More so than any other financial topic, bankruptcy is both complicated and depressing. Think about it: Mortgages are also complex, but after you navigate the process, you own a house!
Bankruptcy, however, is simply a fresh start, says the federal government. Unfortunately, the governments explanation of the process isnt exactly user-friendly its called Bankruptcy Basics, but it looks like this. Not very basic, is it?
So here are three crucial things to know, Vanessa
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Apply For A Secured Credit Card
Secured credit cards are designed for people with bad or no credit. These cards require you to make an up-front deposit typically between $200 and $1,000 as a guarantee against the card’s line of credit. Your credit limit on the account will usually match the deposit. For example, if a card requires a $750 deposit, your credit limit will be $750.
There are a handful of secured credit cards, though, that require only a nominal security deposit and charge no annual fee, yet provide a higher line of credit, like the Capital One Platinum Secured Credit Card. The deposit is returned if you close the account with a zero balance.
Tip: The annual percentage rates on secured credit cards are typically higher than average, so carrying a balance is prohibitively expensive. The key is to use the card responsibly, charging no more than 30% of the credit limit and paying off the balance each month in full.
Here are a few features to look out for on secured credit cards:
Talk To A Bankruptcy Lawyer
Need professional help? Start here.
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How Bankruptcy Affects Your Credit Score
A Chapter 7 bankruptcy filing will stay on your credit report for up to 10 years. But your discharged debts will be removed from your report after seven years because of the statute of limitations. As time passes, your bankruptcy will impact your credit less and less. Using a bankruptcy-friendly credit card will help improve your credit score and increase your credibility with potential lenders, allowing you to resume normal financial routines.
Chapter 13 And Secured Credit Cards
A Chapter 7 bankruptcy is known as a liquidation bankruptcy and itâs the most common type of bankruptcy case filed. To qualify for Chapter 7 bankruptcy, you must pass the Chapter 7 means test which is partially based on the average of your last six months of income. If your income is too high or you need to protect nonexempt property, then you can still proceed with a Chapter 13 bankruptcy filing. The specifics of your financial situation will determine whether a Chapter 7 or Chapter 13 bankruptcy is best for you.
Chapter 13 is known as a reorganization of debt since it involves a 3-5 year repayment plan that must be approved by the court. Chapter 13 provides several benefits that Chapter 7 doesnât, including catching up with payments on secured debt like a mortgage or car payment. With Chapter 13, your secured credit card payments will be included in the 3 to 5-year plan along with your other secured and unsecured debts.
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Shop Around For Credit Card Options
See what credit cards fitting your situation are available from major banks, your local credit union, and any other credit card issuers you find. After bankruptcy, are a good place to start. These are intended for consumers with lower credit scores. Card issuers often have a section with cards designed for building credit and rebuilding credit on their websites.
Another option for poor credit is secured credit cards. This type of card requires a security deposit up front, so card issuers are more lenient on the applicants they approve because they won’t need to worry about unsecured debt. With a typical secured card, the minimum security deposit is $200, but there are a few that have lower minimums.
A Fresh Start After Bankruptcy
Mei Ling and Matt are a married couple who rent a flat in Gosford NSW. Both worked full time until two years ago when Matt lost his job. Mei Ling now works part time earning less than $40,000 per year.
For two years they tried to survive on Mei Lings wage, struggling to make repayments on their overdue credit cards and loans. They ended up with unsecured debts of over $65,000.
The only assets they owned were a car worth $5,000 and general household goods .
The pressure from their creditors became too much to handle. Debt collectors and process servers were constantly calling on them. Their electricity was turned off a few times and they stopped answering phone calls because it always seemed to be bad news. Matts health was also suffering and he was treated for depression. Most nights Mei Ling would end up in tears thinking about their situation.
They finally decided to see a financial counsellor. There was no charge for this service. The financial counsellor looked through their finances and suggested they consider filing for bankruptcy.
Matt and Mei Ling went home and looked in detail at the AFSA website. They read all about their options and the consequences of bankruptcy. The AFSA website showed that they would be able to keep their car because it was worth less than the set amount. They read they could also keep their household goods. In the end, they decided that bankruptcy would be the best option for them.
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Was Your Bankruptcy Due To Financial Mismanagement
If, however, you landed in bankruptcy due to overspending, under-saving or bad budgeting, you should get your finances in order before you open a credit card.
Instead, work with a credit counselor or financial planner to create a workable budget based on your income and monthly bills. Your budget should also include a plan to grow your savings. If you need the convenience of a payment card in the meantime, use a debit card linked to your checking account or a prepaid debit card.
Once you have demonstrated to yourself and others that you can pay your monthly bills on time and save consistently over a long period of time, then consider adding a credit card to the mix. Use it sparingly and responsibly to improve your credit and to build your confidence in managing debt.
Comparing The Best Credit Cards After Bankruptcy: Annual Fee
Of our three chosen cards, only the OpenSky® Secured Visa® Credit Card requires users to pay an annual fee of $35.
This is relatively low compared to non-secured credit cards, which can charge anywhere from $95 to over $500 for their annual fee. However, if you are annual-fee-averse, you may want to stick with the other cards on this list.
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How Can You Repair Your Credit After Bankruptcy
Once you identify and address any issues that led to your bankruptcy, you are ready to start rebuilding your credit. It may surprise you that after a bankruptcy, you begin to receive credit card offers in the mail right away.
But there is something important you should know about these offers. The cards offered generally have very low credit limits and very high interest rates. These are not the most desirable credit cards for you, but if necessary, they can help you rebuild your credit when no better options are available.
If you choose to accept a credit card offer like this, make a promise to yourself that you will not carry a balance from month to month on your card. Make just one purchase per month on such a card, and be sure to pay that purchase off every month. In time, doing this will build your credit slowly.
A better option is to apply for a secured credit card instead.
Other Ways To Rebuild Credit After A Bankruptcy Discharge
You can start to rebuild your credit at any time after bankruptcy. Since improving your credit takes time, the general rule is the sooner you start, the better. Besides secured credit cards, some banks will offer credit-builder loans that work the same as a secured credit card. You simply borrow against the money you have deposited with the bank.
Reputable companies will likely be making you credit card offers some time after you file for bankruptcy. While the initial credit line limit may be low, as long as you make timely monthly payments, your credit limit will increase. Gas station credit cards are usually one of the first companies to offer credit after bankruptcy.
You can also become an authorized user on someoneâs credit card, but that comes with risk. While as an authorized user you arenât responsible for the debt, if the main borrower has late payments or defaults on the credit card, this will affect your credit score. So, you should discuss with the cardholder whether their credit card accounts are in good standing and if they have a positive payment history.
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Applying For A Credit Card
After youve spent some time building your credit score back up through one of the above methods, you can apply for a credit card after bankruptcy. In fact, if youve already built your credit score, its likely that credit card companies have begun to mail you offers anyway.
For more information about choosing the credit card you want to apply for, check out the of our website for offers.
Best Credit Cards After Bankruptcy In 2021 And What To Know Before Applying
Advertiser Disclosure: ValuePenguin is an advertising-supported comparison service which receives compensation from some of the financial providers whose offers appear on our site. This compensation from our advertising partners may impact how and where products appear on our site . To provide more complete comparisons, the site features products from our partners as well as institutions which are not advertising partners. While we make an effort to include the best deals available to the general public, we make no warranty that such information represents all available products.
The best credit card after bankruptcy is the Discover it® Secured Credit Card, which comes with ample rewards and no credit score required to apply.
Editorial Note: The content of this article is based on the authors opinions and recommendations alone. It may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.
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Is It A Good Idea To Get A Credit Card After Bankruptcy
Knowing whether or not it is a good idea to get a credit card after bankruptcy is an important question. It may have been that is what led to your bankruptcy in the first place, or perhaps you struggle to manage your credit card limits. You may simply be wary of using a credit card again for spending. This is where sessions can help. Credit cards can actually be one of the most effective ways of rebuilding your credit, so long as they are used sensibly. If you get a secured credit card, do not overspend, and pay off the balance in full on time. It will indicate to banks and lenders that you are responsible with your money. Subsequently, this will mean your credit report begins to improve. One thing to note is that prepaid credit card activity is not reported to credit bureaus, and therefore will not impact your credit score.
Exceptions For Eliminating Debt With Chapter 7 Bankruptcy
While there are plenty of reasons to eliminate credit card debt through Chapter 7 bankruptcy, there are two major reasons you would not have the debt successfully discharged:
- You incurred debt on your credit card as the result of fraud
- You used the credit card to purchase property that the creditor has a security interest in, such as a high-end appliance or piece of jewelry.
The issue of fraud could be the result of you making false statements that allowed you to get the credit card in the first place. For example, over-stating your income on your application or possibly doctoring or counterfeiting a credit card to make purchases.
It also is considered fraud when you use the credit card to make luxury purchases of more than $725 or took a cash advance of more than $1,000 within 70 days of filing bankruptcy. In other words: If you know youre going to file bankruptcy, dont go running up tabs on your credit card.
The second reason is rare, but could result in purchases you made, being repossessed. If creditors see that you bought a top-of-the-line appliance or living room furniture or gold and diamond jewelry, that could be considered secured debt. They could call it collateral and ask for it.
The debts for these purchases can be wiped out, but you wont be permitted to keep the property.
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Where Can I Get A Good Secured Credit Card In Canada
Two secured credit cards came highly recommended to me: Peoples Trust MasterCard and Home Trust Visa. I was very excited when I read on their websites that virtually everyone is approved. As long as you are 18 or older and be discharged from your bankruptcy , plus a few other logical requirements, your chances of approval are excellent. You just need to print the application form from their websites and mail it in with your deposit. Your deposit becomes your credit limit. It cannot be decreased. It can be increased anytime in the future by simply sending in more money to add to the deposit.
Unfortunately, Home Trust Visa is not available to residents of Quebec, so I had to pass on that one. But I did apply for and receive a Peoples Trust MasterCard. Ive been using and paying it ever since. Its been reporting to my Equifax and TransUnion credit reports for a year already which has greatly helped to strengthen my credit. It would have been nice to have two lines of credit reporting to my credit reports, but one is better than nothing. If you are able to get two secured cards, go for it. Later, when you apply for other credit, like a mortgage or car loan, some lenders like to see more than just one line of re-established credit.
A Bankruptcy Question From A Debtcom Reader
Question: In 1997, I declared bankruptcy after a terrible divorce. I was doing fine until I got laid off a few years ago. My problem is, when Im under stress, I like shopping therapy. It never really works but I keep doing anyway.
Even though I have a wonderful new job, it doesnt pay what my old one did, and I have more than $20,000 on various credit cards. Im getting angry calls from debt collectors, and the stress is making me lose my hair literally!
So Im considering bankruptcy again. I hear the law has changed, but its hard to figure it out by searching the Internet. Can you give me some advice?
Vanessa in Tennessee
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