Myths About Bankruptcy & Your Credit Score

TL;DR

Filing for bankruptcy does not permanently damage your credit score, and recovery is surprisingly quick. Lending options for credit cards, car loans, and mortgages are available within a short period after bankruptcy.

Transcript

• Hey everybody, John Skiba here and in this video, I'm going to talk about some of the myths that are associated with bankruptcy, specifically whether you can get a car loan, a credit card, even a mortgage after you filed for bankruptcy. There's a lot of bad information out there and in this video we're going to tackle some of those issues. If thi... Read More

Key Insights

• 💯 Filing for bankruptcy does not necessarily result in a dramatic decline in credit score and can actually lead to a quicker credit score recovery.
• 💳 Negative information that has been impacting your credit score, such as delinquencies and collection accounts, is removed from your credit report after filing for bankruptcy.
• 💳 Credit options, including unsecured credit cards, car loans, and mortgages, become available within a relatively short period after filing for bankruptcy.
• 💳 Responsible credit usage and timely payments are vital for rebuilding credit and not defaulting on new obligations.
• 💳 Reaffirming specific debts, such as car loans, during Chapter 7 bankruptcy can further contribute to credit score recovery.
• 📁 It is possible to obtain a mortgage within a few years after filing for bankruptcy, particularly with FHA loans.
• 👻 The overall success of credit score recovery depends on taking action and not allowing collection accounts or lawsuits to linger.

Questions & Answers

Q: How does filing for bankruptcy affect your credit score?

Filing for bankruptcy does not necessarily have a long-lasting negative impact on your credit score. In fact, if your credit score was already low before filing, the additional damage may be minimal. Additionally, negative information that has been dragging down your score, such as delinquencies and collection accounts, will be removed, leading to a potential score increase.

Q: Can you get a credit card after filing for bankruptcy?

Yes, it is possible to get an unsecured credit card after filing for bankruptcy, usually once your credit score reaches around 640. However, interest rates may be high initially, so responsible usage is crucial. It's important to note that any debts incurred after bankruptcy cannot be included in another filing for the next eight years, so caution is necessary.

Q: Are car loans available after filing for bankruptcy?

After filing for bankruptcy, you may receive numerous car loan advertisements in the mail. This is because lenders see individuals who have recently filed for bankruptcy as potentially good credit risks, as their debt has been eliminated and they can't file for bankruptcy again for eight years. Car loans generally require a credit score of around 580, and as your credit score rebounds quickly after bankruptcy, you may be eligible for better interest rates.

Q: How soon can you get a mortgage after filing for bankruptcy?

While bankruptcy does stay on your credit report for ten years, you can obtain an FHA loan two years after filing for Chapter 7 bankruptcy, even before the discharge is entered with the court. Private lenders may have varying requirements, so it's advisable to focus on FHA loans initially and wait at least one to three years before applying for a mortgage.

Summary & Key Takeaways

• Filing for bankruptcy does not necessarily result in a significant decline in credit score, especially if your score was already low due to previous financial difficulties.

• After filing for bankruptcy, negative information that has been affecting your credit score, such as delinquencies and collection accounts, will be removed from your credit report.

• Credit options like unsecured credit cards, car loans, and mortgages become available within a relatively short period after filing for bankruptcy.