5 Myths Surrounding Bankruptcy
Bankruptcy is surrounded by myths, and they keep eligible individuals from pursuing what can be an amazing way out of crippling debt and financial stress. You deserve freedom from the anxiety caused by the myths surrounding bankruptcy. We hope this article helps. And if you have any questions, we’re here to answer them. Just reach out to us.
#1 All Bankruptcy Filings Are The Same
To understand and debunk some of the myths about Chapter 7 bankruptcy, we must first understand how Chapter 7 bankruptcy differs from Chapter 13 bankruptcy. While both are consumer bankruptcy options, Chapter 7 bankruptcy is typically used in a situation where the client has limited income and assets, and does not have the ability to pay back all or even some of their debt. Chapter 13 bankruptcy is a tool for catching up on a delinquent secured debt like a mortgage or car. It is also a compromise where you pay back some of your debt while completing a court approved repayment plan.
#2 Bankruptcy Will Stay On My Credit Report Forever
While effects of a Bankruptcy on your credit report can vary due to the case, the credit reporting of a Chapter 7 bankruptcy lasts a maximum of ten years. Some credit reporting agencies remove the bankruptcy after seven years. Some of these credit report references to bankruptcy include trade lines that state that your account was included in bankruptcy, and third party collection debts, judgments, and tax liens discharged through bankruptcy. More importantly, your credit score and your ability to get a loan or credit card recovers much faster than this time frame. We see this with clients year after year.
#3 My Credit Score Won’t Improve Until The Bankruptcy Is Gone From My Credit Report
While your post-bankruptcy credit score will show a drop after filing, you will be surprised at how quickly your credit score begins to recover. One reason is that by way of the bankruptcy, your debt to income ratio improves in your favor. Additionally, creditors are more likely to lend you money because they know you have no other debt, and they know you can’t file bankruptcy again. Often, the same creditors you included in your bankruptcy filing will offer you new extensions of credit shortly after you file.
Obtaining a secured line of credit and making payments on it, or taking out a new credit card and making payments on it, will help you to raise your credit score with the goal of hitting the range of 700-749 over time. Making on-time payments for all debt, adding and paying new credit, and keeping your credit card balances under a thirty percent utilization are all examples of ways to boost your post-bankruptcy credit score.
#4 I’ll Never Have Credit Cards Again
While we secretly hope this is true for you, we hope it’s because you choose to never have a credit card again. The truth is, as this article has indicated so far, you’ll be given lots of opportunities to have a credit card after filing bankruptcy. Truthfully, credit cards are actually one of the best ways to build credit, and options for those post-bankruptcy do in fact exist.
Credit cards that require an upfront security deposit, are called secured credit cards and have a lower barrier of entry but allow you to spend and rebuild credit just like any other kind of credit card. After you make consistent payments on a secured credit card, you will see your credit score increase and other credit opportunities arise.
#5 I’ll Never Get A Home Loan After Filing Chapter 7
Similar to credit cards, when paid on time, loans help you to rebuild your credit score and certain loans are easier to receive after having filed bankruptcy. Credit builder loans, CD loans, or Passbook loans, are similarly secured with a deposit or collateral and will all help to rebuild your credit score. These loans are easier to procure due to the simple fact that the lender is protected in the event that you are unable to pay, which makes them a great opportunity to rebuild credit score in the meantime. If you’re repaying a vehicle loan, you’ll also see the benefits by way of an increase in your credit score.
Generally, at the two year mark after filing bankruptcy, our clients who have diligently re-built their credit after bankruptcy, find they are eligible for a mortgage. A more conservative estimate would be two to four years; however, we receive so many phone calls at the two year mark from clients who are excited because they are buying a home, that it’s worth mentioning here.
Speak With A Charlotte Bankruptcy Lawyer Today
If you are considering filing bankruptcy, it’s important that you speak with a Charlotte bankruptcy attorney. The call is free and you will come away with a much better understanding of your options. You can reach us at 704.749.7747 or click to request a FREE CASE EVALUATION, and we will be in touch shortly.
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