SUMMARY: Generally, bankruptcy does not keep you from being able to obtain new credit after your bankruptcy is complete. There will be a waiting period before you can qualify for big-ticket items, such as a home or car. Other factors, such as income and your credit management after bankruptcy will also impact qualifying for new credit. After filing bankruptcy, take steps to improve your credit. Make sure your credit report is accurate. Rebuild your credit by paying new credit accounts perfectly.
Access to credit after bankruptcy is a major concern to most people. Most people buy big ticket items on credit, especially a vehicle or home. One question we are repeatedly asked is: what impact will bankruptcy have on my credit and on buying these items?
Filing bankruptcy will have a negative impact on your credit profile. You should discuss your short and long term financial goals with your bankruptcy attorney. You should aggressively attempt to improve your credit score after your bankruptcy closes out. In most cases, bankruptcy may zero out your unsecured debt, but you will need good credit reporting to help you rehabilitate your credit. If you are keeping your home or a vehicle that have loans on them, make sure you never pay late. If you do not have any creditors reporting to the credit bureau after filing bankruptcy, consider getting a gas card or credit card that you pay off each month so that you can begin to establish a credit record of excellent management of debt.
Tips for rebuilding your credit after filing bankruptcy:
1. Obtain copy of credit report before filing so you know your baseline score.
2. After your bankruptcy case closes, pull your credit report again in 90 days. Discharged debt should be reported as $0 balance – “account included in bankruptcy.” If accounts that were discharged still show a balance, correct this with a formal dispute. Review your report and consider taking steps to correct any inaccuracies.
3. Pay all reaffirmed, secured debt (the stuff that you kept, such as car and home) on time. If you don’t have any loans that report to the credit bureau on your payments, consider a secured loan at a credit union or local bank. You need new positive information to be reported that shows you can handle credit well.
4. Do not take on excessive debt. One credit card that you charge a recurring expense on, such as gas, and then pay off every month, will help report positive use of credit.
Obtaining New Credit While in an Active Chapter 13 Case
In a Chapter 13 debt reorganization, you must obtain the permission of the Trustee by filling out a request to incur debt form. If the Trustee disapproves the credit purchase, you have the option of requesting court approval. In the Eastern District of Texas (Marshall & Tyler Divisions), if you need to purchase a car while your Chapter 13 case is pending, the Trustee currently has the following restrictions: 1) vehicle loan must be no more than $20,000; 2) monthly payment must be $500 or less; and 3) the term of the loan must be no more than 5 years. You also must demonstrate that you can afford the new car payment and be current on your Chapter 13 bankruptcy plan payments. Obviously, the vehicle purchase must be necessary.
Requests to incur debt before the Chapter 13 Plan is confirmed require Court approval. Generally, the Trustee and Court will not approve a request to incur student loan debt. If a student is considering bankruptcy, borrowing money for school is generally not going to be allowed.
Bankruptcy is a serious decision. The impact of bankruptcy on credit needs to be weighed against the relief that bankruptcy can bring. Contact a qualified bankruptcy attorney and know your options.