Obtaining Credit After a Bankruptcy Case

For many, the stress of managing high credit balances and collection demands before a bankruptcy case is enough to cause them to swear off credit after the bankruptcy case is over.

Other clients want to know how soon after the bankruptcy case they will qualify for credit.

Creditors can grant new credit to a bankruptcy debtor at any time after a case is completed. There are no restrictions in the law that would prohibit a creditor from issuing a credit card, refinancing a mortgage or advancing money on a car title. The decision to grant credit is entirely the creditor’s.

Getting credit after a bankruptcy is fairly easy. Former bankruptcy debtors often report that they receive credit card offers, offers for special financing at a car dealership or even flyers from dental offices offering terms for high dollar procedures like braces. Why would a creditor want to issue credit to someone who just filed bankruptcy? They see recent debtors as good potential customers. They come out of the case with little debt and they cannot file a Chapter 7 bankruptcy case for eight years or a Chapter 13 case for four years.

Credit Offers

Credit offers from local stores or car lots are fairly common after a bankruptcy case. But, should you take advantage of them? Many debtors ignore them and resolve to live within their means, less dependent on credit cards and debt in general. Others are anxious to re-establish creditworthiness to pave the way for a mortgage or car loan. Some need credit for travel or business expenses. Therefore, whether you should consider these offers often hinges on how the credit will help you and how soon you need it.

Local Retailers

It can be easier to get credit with a local company or store, and often the credit terms on those cards will be better than nationally branded cards like Visa or Mastercard. You probably will not be offered a high credit limit. You will likely have to earn a higher limit by using the account and paying it on time every time.

Secured Credit Cards

Another option is the secured credit card. The issuing bank will ask you to deposit an amount of money roughly equal to the credit limit on the card. You use the card as you would any other. You make payments on the account as you would any other. If you fail to make payments on the account, the bank has your deposit available to cover the deficiency.  

Although secured credit cards also carry fees and outsized interest rates, they are usually not as high as unsecured credit cards.

Unsecured Credit Cards

Some banks have nationally branded credit card accounts designed for a post-bankruptcy market. They may not be the first offers you receive in the mail, but it will not be long before your mailbox is overflowing. Most of these offers will carry a high interest rate. With many credit cards, you owe a balance as soon as your account is opened. It is not unusual for a credit card with a $500 limit to accrue $100 or more with an annual fee, processing fee, and other fees before you receive the card in the mail. These fees should be prominently disclosed on the credit application.

Avoid Payday and Title Lenders

These may seem like an easy way to borrow a little money. And there’s a reason for that. Payday lenders and title lenders will offer you the worst terms in the market, and you may find that it is next to impossible to pay one off. For example, some payday and title loans will not let you pay the loan back in installments. Instead, you must make a lump sum principal payment. Until you can come up with that lump sum, you will pay interest at an exorbitant rate, sometimes as high as 450 percent annually.  

The Law Offices of Melanie Tavare of Hayward and Oakland can help you file a bankruptcy case and can help usher you through those uncertain months after the bankruptcy when you work to re-establish your financial health. Learn more about how The Law Offices of Melanie Tavare can help you before, during and after your bankruptcy case. Call us at 510-255-4646 or contact us online.

The Law Offices of Melanie Tavare is a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.