Chapter 7 Bankruptcy and Credit
Although Bankruptcy will effect your credit negatively at first, it doesn't take as long as most people believe to rebuild credit. After a couple of years your credit score can be in the "good" range, and you can procure a home loan after two years so long as you have enough income to qualify to make a mortgage payment. You can also get an auto loan and credit cards.
Getting a Home Loan After Bankruptcy
As mentioned above, individuals who have had to file bankruptcy to regain a fresh start can get a mortgage loan after two years. FHA will approve a home loan two years after a bankruptcy discharge. Conventional loans typically require a longer period, three to four years, with a 20% down payment. However, most people qualify for an FHA loan anyway, and with an FHA loan you typically only need to put down 3% plus closing costs.
Credit Score After Bankruptcy
While there is no set time frame that clearly outlines how long it takes to have a good credit score after a bankruptcy filing, 18 months to two years is a pretty good rule of thumb. Here at Scott Mitchell Law, most of our clients have reported that their scores are around or above 650 after two years of good credit management.
Credit Cards After Bankruptcy
Individuals who file bankruptcy will almost immediately receive solicitations for applying for credit cards. The problem is that the interest rates are ridiculous, and such cards should be avoided except for maybe one or two with low credit limits at first. If you use the high interest card say for a utility bill and pay it off every month, this approach can help rebuild your credit score. You can also apply for a secured credit card with your bank and use it the same way you would as any other credit card. In this case, you place funds in your bank as security for the card usage. This approach can also help build your credit. Another approach is to ask friends or family to add you as an authorized user on their accounts (only if they have good credit themselves), but then simply don't even take the card or use it. Your friend of family member will more likely be willing to add you if you tell them you aren't going to actually take the card or use it.
Auto Loans After Bankruptcy
It is quite common to obtain an auto loan almost immediately after a bankruptcy. The issue is the interest rate that you may pay. However, in more recent years, auto lenders have given better interest rates to individuals who have recently filed bankruptcy. The general rational is that an automobile is a necessity, and if an individual has recently filed bankruptcy, that individual will not be able to file for bankruptcy again for many years, and therefore, will likely continue to make payments on the car even when things get tight. Also, bankruptcy doesn't have the same stigma that it had even 15 to 20 years ago.