In the current economic climate, millions of people are filing bankruptcy. The statistics reveal that Chapter 7 is by far the most frequently filed Chapter with 958,634 non - business of consumer filings for the period ending December 31, 2011. The reason for this is that a Chapter 7 bankruptcy releases individual debtors from personal liability for most debts and prevents the creditors owed those debts from taking any collection actions against the debtor. 11 U.S.C 727
When considering filing for bankruptcy one of the frequently asked questions that is pose to a bankruptcy attorney when contemplating filing bankruptcy is " Will I be able to get credit, after filing bankruptcy?"
There is no one answer to this question. In truth the answer varies from individual to individual. This article seeks to provide some insight into the factors which go into answering this question.
As an attorney practicing bankruptcy for over thirty years, I can tell you that there is a common misunderstanding among those considering filing for bankruptcy, is they will no longer be able to buy a home, car or even get credit. While it is true that a bankruptcy can appear on your credit report for years, a bankrupt's ability to get credit post - bankruptcy is dependent on two factors. The first is the debtor's income post - bankruptcy. The second is the debtor's ability to show that they can manage their post - bankruptcy debt. I can safely say that the one constant in answering the question posed by this article and most important factor in securing credit post - bankruptcy is a demonstrating ability to pay.
In reality securing credit post - bankruptcy is a not only possible but likely if the bankrupt can demonstrate ability to pay. Some extreme examples that demonstrate the importance of ability to pay are the unemployed debtor versus the lottery winner. Needless to say if after you filed for bankruptcy you are unemployed, it does not matter that you filed bankruptcy and discharged your debt, you still will not be able to get a credit card, a new car or home mortgage financing. Now the flip side to this extreme is the fortuitous lottery winner.
It can hardly be argued that a bankrupt who wins the lottery after the entry of his or her discharge will be able to buy virtually anything and the obtaining of credit will be little or no problem.
Now that we have discussed the two extremes, lets talk about a typical consumer, who makes a living wage and has through bankruptcy shed all of his or her debt. For the typical consumer, it is their financial condition, post - bankruptcy, and their ability to manage their post - bankruptcy debt that determines the extent of credit that will be extended after filing for bankruptcy.
For the purpose of our discussion, let's say that our typical consumer has $50,000 in credit card debt pre - bankruptcy, consisting of ten (10) unsecured creditors. Let's also assume that the consumer has a steady job and is making $4,000.00 a month. Now imaging that you are a banker and this consumer walks into your office with $50,000.00 in debt, ten creditors and a yearly income of $48,000.00. If you were a banker, would you give this consumer a loan, knowing that the consumer already has ten outstanding creditors and debt equal to over a year's worth of income?
Contrast this with the same debtor, post - bankruptcy. As mentioned above, a debtor receives a discharge in Chapter 7. What this means is that all existing unsecured debt, with few exceptions like taxes and child support, are wiped out. Again put yourself in the shoes of a banker. If that same consumer walked into your office making $4,000.00 with absolutely no debt and no other creditors, wouldn't you be more inclined to grant that consumer a loan? Especially knowing that the consumer had already filed a Chapter 7 and couldn't again file another for at least another eight years. 11 U.S.C. 727 (a)(8)
So if you walked into your banker had $50,000 worth of debt, was making $4,000 month and had ten credit cards that you couldn't pay, would you think that banker would be willing to be the eleventh creditor?
However, once you had been discharged of all your debt, had you walked in to see the banker with absolutely no debt and not a single credit card or other outstanding bill, still making $4,000.00 per month wouldn't you be a better risk knowing that as a banker he would be first in line to be paid, not eleventh.
In sum, the post - bankruptcy credit issuer, be it a credit card company or your mortgage banker knows two pivotal things. First, that the consumer has no debt having already discharged it in a Chapter 7. Second, that the consumer can't file Chapter 7 again for eight more years.
In sum, the filing Chapter 7 is designed to give the debtor a "fresh start." Part of the "fresh start" means a fresh look by bankers of all kinds. As such the debtor in a post - bankruptcy world is a much better credit risk that the same debtor pre - bankruptcy. Thus, the important thing to remember is that your ability to secure credit post - bankruptcy depends not so much on your prior credit history but how you manage your financial affairs after filing bankruptcy.
When considering filing for bankruptcy one of the frequently asked questions that is pose to a bankruptcy attorney when contemplating filing bankruptcy is " Will I be able to get credit, after filing bankruptcy?"
There is no one answer to this question. In truth the answer varies from individual to individual. This article seeks to provide some insight into the factors which go into answering this question.
As an attorney practicing bankruptcy for over thirty years, I can tell you that there is a common misunderstanding among those considering filing for bankruptcy, is they will no longer be able to buy a home, car or even get credit. While it is true that a bankruptcy can appear on your credit report for years, a bankrupt's ability to get credit post - bankruptcy is dependent on two factors. The first is the debtor's income post - bankruptcy. The second is the debtor's ability to show that they can manage their post - bankruptcy debt. I can safely say that the one constant in answering the question posed by this article and most important factor in securing credit post - bankruptcy is a demonstrating ability to pay.
In reality securing credit post - bankruptcy is a not only possible but likely if the bankrupt can demonstrate ability to pay. Some extreme examples that demonstrate the importance of ability to pay are the unemployed debtor versus the lottery winner. Needless to say if after you filed for bankruptcy you are unemployed, it does not matter that you filed bankruptcy and discharged your debt, you still will not be able to get a credit card, a new car or home mortgage financing. Now the flip side to this extreme is the fortuitous lottery winner.
It can hardly be argued that a bankrupt who wins the lottery after the entry of his or her discharge will be able to buy virtually anything and the obtaining of credit will be little or no problem.
Now that we have discussed the two extremes, lets talk about a typical consumer, who makes a living wage and has through bankruptcy shed all of his or her debt. For the typical consumer, it is their financial condition, post - bankruptcy, and their ability to manage their post - bankruptcy debt that determines the extent of credit that will be extended after filing for bankruptcy.
For the purpose of our discussion, let's say that our typical consumer has $50,000 in credit card debt pre - bankruptcy, consisting of ten (10) unsecured creditors. Let's also assume that the consumer has a steady job and is making $4,000.00 a month. Now imaging that you are a banker and this consumer walks into your office with $50,000.00 in debt, ten creditors and a yearly income of $48,000.00. If you were a banker, would you give this consumer a loan, knowing that the consumer already has ten outstanding creditors and debt equal to over a year's worth of income?
Contrast this with the same debtor, post - bankruptcy. As mentioned above, a debtor receives a discharge in Chapter 7. What this means is that all existing unsecured debt, with few exceptions like taxes and child support, are wiped out. Again put yourself in the shoes of a banker. If that same consumer walked into your office making $4,000.00 with absolutely no debt and no other creditors, wouldn't you be more inclined to grant that consumer a loan? Especially knowing that the consumer had already filed a Chapter 7 and couldn't again file another for at least another eight years. 11 U.S.C. 727 (a)(8)
So if you walked into your banker had $50,000 worth of debt, was making $4,000 month and had ten credit cards that you couldn't pay, would you think that banker would be willing to be the eleventh creditor?
However, once you had been discharged of all your debt, had you walked in to see the banker with absolutely no debt and not a single credit card or other outstanding bill, still making $4,000.00 per month wouldn't you be a better risk knowing that as a banker he would be first in line to be paid, not eleventh.
In sum, the post - bankruptcy credit issuer, be it a credit card company or your mortgage banker knows two pivotal things. First, that the consumer has no debt having already discharged it in a Chapter 7. Second, that the consumer can't file Chapter 7 again for eight more years.
In sum, the filing Chapter 7 is designed to give the debtor a "fresh start." Part of the "fresh start" means a fresh look by bankers of all kinds. As such the debtor in a post - bankruptcy world is a much better credit risk that the same debtor pre - bankruptcy. Thus, the important thing to remember is that your ability to secure credit post - bankruptcy depends not so much on your prior credit history but how you manage your financial affairs after filing bankruptcy.
About the Author:
Learn more about Chapter 7 bankruptcy. Stop by Mitchell Sussman's site where you can find out all about bankruptcy and how it can help you.
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