How To Get A Credit Card After Filing Bankruptcy

Several activities can leave a long-lasting effect on our finances. Failed investments, fraud, scams, mismanagement of funds, unregulated expenditures, and more can lead to a situation like bankruptcy.

Declaring bankruptcy often leaves a near-permanent dent in your credit scores. It can also deter you from getting a conventional credit card for many years. Additionally, individuals who decide to file for bankruptcy may need to choose between Chapter 7 or Chapter 13 bankruptcy.

In the United States bankruptcy code, these chapters represent sections in which the procedures that will be used in taking care of your debts are outlined. This means that your choice will determine whether your assets will be liquidated to repay your loans or a debt repayment plan will be created for you.

How Does Bankruptcy Affect Credit?

In the United States, bankruptcy courts in Louisville ky is one of the federal courts set aside to handle bankruptcy issues. These courts also devise means, through your filing of either Chapter 7 or Chapter 13 bankruptcy in Louisville, how to use your assets or develop a payment plan to enable you to pay your creditors. 

Furthermore, these courts will also assist you to get a fresh financial start and approve of your credit card. But only when you meet the requirements for eligibility.

However, filing for bankruptcy can have various impacts on your credit report. For example, when you file a Charge 7 bankruptcy, all your debts are eliminated. However, this remains on your credit report for as long as 10 years. 

On the other hand, a Chapter 13 bankruptcy will remain on your credit report for seven years. But, it restructures your debts and offers partial repayment to your creditors.

Creditors are often affected by these bankruptcy counts because in cases like the Chapter 7 bankruptcy, they do not get any repayment at all, while in Chapter 13 bankruptcy, creditors may be fortunate to get a fraction of the amount you owe them. 

Well, with these effects on creditors, it is simple to say that bankruptcy discourages lenders from offering you new credit. 

This is because creditors often shy away from issuing credits to individuals with bankruptcy on their credit reports. Furthermore, lenders perceive individuals who file for bankruptcy as high-risk borrowers.

Moreso, A bankruptcy on your credit report often lowers your credit score. But the brighter side is that its effect on your credit will fade over time. 

However, it is better to adapt and maintain quality credit habits after bankruptcy such as establishing early and steady debt payments on your credit report and avoiding excessive debt.

Getting A Credit Card After Filing for Bankruptcy

After bankruptcy, getting a credit card could be difficult. The first step to getting one is by checking your credit score. It is necessary to check your credit score to determine what type of card you are eligible to apply for. 

Most of the time, bankruptcy reduces your chances of obtaining a conventional credit card. It could further drop your eligibility for a card to a fair or poor card range even before you file for bankruptcy. 

But the good thing is that there are strategies that can assist you in rebuilding your credit score after bankruptcy.

When applying for a credit card, the most suitable one for you should be a secured credit card, which requires a cash deposit. This deposit equals the borrowing limit of the card. And if you are unable to pay your card’s balance as stipulated, the deposit you made for the card can be taken by the issuer of the card, to cover the debt.

In addition, the secured card functions like a conventional credit card. You can make purchases that reach your borrowing limit and repay overtime with a minimum monthly payment. If there is any unpaid debt that you carry forward, you will be charged with interest.

Furthermore, secured cards lower the rates of interest and fees compared to unsecured cards which are designed for people with poor credit scores. 

But, the downside of these secured cards is their low borrowing limit. This limit restricts your purchases, but on the brighter side, after bankruptcy, these restrictions assist in rebuilding your credit score.

In contrast, unsecured cards also have low borrowing limits, but they do not require a cash deposit. Furthermore, if you can consistently maintain low balances and pay them off in full each month, you can avoid interest charges.

Do I Have To Repay My Debts In Bankruptcy?

This is solely dependent on the type of debt. You may have to repay some of your debt, at least, those backed up with collateral. And this applies to both Chapter 7 and Chapter 13 filings.

With Chapter 7 filing, unsecured debts are waived off with the approval of the court where you filed bankruptcy. And this can take several months.  

Whereas, Chapter 13 will require continuous payments on those balances from you, until the end of the repayment plan instructed to you by your court. After which, unsecured debt will be wiped out

While these Chapters may wipe out some debts, debts like Tax debts, auto loans, alimony, student loans, and mortgages, may not be dismissed. 

Your court-approved repayment plan may reduce the debt you owe with Chapter 13 bankruptcy to facilitate repayment.  While with Chapter 7 bankruptcy, secured debts such as car loans may be wiped out only if you give up the car.

3 Effective Ways To Avoid Bankruptcy

1 Consider Credit Counseling

In the United States credit counseling, Louisville ky offers several services which include assistance through debt management. 

This debt management plan can serve as a debit relief because an agency works on your behalf to lower your interest rates, and other fees and create an affordable payment plan for you. 

However, this comes with a stipulated amount but not over $50 for the set-up fee and about $25 monthly. 

These charges must be in accordance with the National Foundation for Credit Counseling (NFCC), so make sure to cross-check the amount you are charged by any agency.

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2 Negotiate The Debt:

Once you’ve exhausted every option of repaying your debt, you might quit making payments. 

In some cases, your creditor might sell it off to a collection agency. This agency will be responsible for collecting your debt and would buzz your phone at the slightest to remind you of your debt. 

However, many individuals do not know that they can negotiate their debt with the collectors and also reduce it to an agreeable amount, an amount they can pay. This will also save them money. 

3 Prioritize Your Bills

If you find yourself struggling with uncontrolled expenses, you can still recover. This can be done by choosing the most important bills and putting them first. 

These bills are mostly rent, groceries, necessary clothing, and a few more. Prioritizing these makes it easier for you to monitor your expenses and keep up with your bills by paying them first. 

The Bottom Line

Bankruptcy can have implications for both debtors and creditors. However, it is not the end of the world as anyone can strategically rebuild their credit.

Moreover, obtaining a secured or unsecured credit card after bankruptcy reduces your borrowing limit and helps you rebuild your credit.