In a difficult financial situation where you are behind on debt payments without an end in sight, is filing a bankruptcy still “bad” for your credit profile? Bankruptcy on its own is definitely a negative impact on your credit profile, but the reality is that most people who are looking into bankruptcy may already be behind on payments with their credit score already affected by negative marks. After you file for bankruptcy, it is very likely that you will receive new credit offers extended to you that would have never been extended had you not filed for bankruptcy to wipe out your unsecured debt. We can take a closer look at how this works.
When you are late on payments and have maximum balances on all of your credit cards, your credit profile has no open credit lines and no one will be offering you new credit lines in the future. When you file for bankruptcy, all of your unsecured debt is eliminated or discharged by the bankruptcy court in a Chapter 7 bankruptcy. In most jurisdictions, this process will not take more than a few months. After all of your debt is discharged, your debt to income ratio goes from very poor to near perfect. The other factor that banks are well aware of is that you cannot file another Chapter 7 bankruptcy for 8 years. They know that there is no way for you to discharge their debt anytime soon. So, they are more comfortable extending you new credit with those factors considered. Even though the bankruptcy is on your credit profile, your credit profile now shows that all your debts have been discharged in the bankruptcy and will allow you to get new credit. You will even be able to apply for new credit lines like credit cards, auto-loans, and, after 3 years (according to our mortgage resources) you can apply for a home loan (Contact your local mortgage broker to verify their guidelines of securing a home loan with a bankruptcy in your profile to verify this information. Mortgage guidelines can be subject to changes over time).
So, without a bankruptcy, your credit lines are maxed out and you have collections activities looming. With a bankruptcy, you will be offered new credit lines, stop collections activities, and eliminate all of your unsecured debt. How is bankruptcy actually “bad” for your credit profile when your credit profile is useless without a bankruptcy in the first place? Well, as we can see here, bankruptcy is only detrimental in some situations, but for most who need a bankruptcy, it will leave you much better off for your future.
Keep in mind, this is not an uncommon or rare situation. Most of our bankruptcy clients do receive new credit card offers immediately after a bankruptcy is discharged and closed. Check your bankruptcy options with a law firm that offers free consultations and you have nothing to lose to explore the option.
Bankruptcy Law Professionals is a law firm based in Southern California with offices in Riverside and Orange County. We can be reached for free consultations at 855 257-7671.
