Credit Before and After Bankruptcy

April 7, 2012 by  Filed under: Bankruptcy 

One of the biggest areas of concerns for anyone considering bankruptcy is what will happen to their credit. The truth is, bankruptcy does not damage credit, but missing payments does. While there aren’t many negative effects of bankruptcy on credit, there is still much to consider about your credit standing before you file for bankruptcy.

Before Filing

Filing for bankruptcy is a serious decision, one that should not be pursued without careful review. The reason is that not everyone will qualify for bankruptcy and some may not necessarily need the protection it can offer. Although filing for bankruptcy does not actually damage your credit standing it can be reported for several years, which can make securing future credit more challenging in some cases. To avoid an unnecessary filing or future credit challenges, it is important to consider whether filing for bankruptcy is really right for you.

First, take a look at your debt accounts and determine the severity level of their delinquency. Are you more than three months behind? Do you have any assets at risk of liquidation because of these debts? If the answer is ‘yes’ you may find that filing for bankruptcy is your best option. However, if your accounts are not significantly past due, you can afford to repay these debts directly and your assets are safe from creditors, you may find that a debt negotiation with your lender is the best option. Resolving your debts directly with a lender can eliminate the need for court fees and will keep the bankruptcy from being listed on your credit report.

After A Discharge

Anyone who needs bankruptcy protection is well served by the process, which can halt collections, foreclosures and repossessions while debts are resolved. Once the case is completed your debts will be discharged. At this point, you are in a unique situation to take charge of your financial future. Although your bankruptcy filing will be listed on your credit report for a few years, you are still eligible to obtain credit. The trick is finding the right type of credit after bankruptcy.

There are a few things to look for when attempting to secure new credit post-bankruptcy. First, stay away from secured lines of credit that require you to put up an asset or personal property as collateral against the loan. This means you should not apply for a mortgage or car loan after bankruptcy. Stick to unsecured lines of credit, such as a credit card, that you can use to maintain a small balance. Keeping a manageable balance and making responsible payments is the best way to rebuild your credit. Avoid prepaid credit or debit cards, as these do nothing to help you repair your credit or gain a positive borrowing history.

The Lee Law Firm is a Dallas, Texas bankruptcy firm that aims to provide local residents with high quality legal representation at affordable rates. Their attorneys are professional and compassionate, giving clients the personalized attention they deserve. When filing bankruptcy, the Lee Law Firm is the right choice to help in the face of financial hardship.

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