The most common worry my clients have is "Won't Bankruptcy Ruin My Credit?" and the answer to that is complicated, but seldom as bad as people fear.
Bankruptcy doesn't mean you'll never get a loan again--my bankruptcy clients typically get car loan and credit card offers before the case is discharged! In fact, for many people bankruptcy is the fastest way to repair credit.
I advise my clients to wait to get credit, except in an emergency. Rule of thumb (depending on the economy, of course), is waiting three years after discharge will give you reasonable interest rates for a home loan, car loan or credit card. If you're eligible for a subsidized loan (VA, etc.), you're eligible two years after bankruptcy.
Bankruptcy Can Be a Fresh Start
It's probably no surprise that a bankruptcy lawyer is no fan of credit cards (or the big banks that bleed my clients dry), but there's no denying they can come in handy.
Stay away from the predatory lenders that charge annual fees and interest rates in the stratosphere. Instead, ask the bank or credit union you already use if they have a secured credit card program.
You can build your credit and your savings at the same time by opening a secured account, gradually adding to the amount and paying off the debt each month, so you aren't charged interest!
Always research Before you buy. Go into a dealership knowing how much the car you want really sells for. If you can, line up financing first. Your bank or credit union may help you there. The dealer has no incentive to make sure you get the best payment. That's up to you.
Look beyond the payment! What is the interest rate? How many payments is it? What kind of warranty does it have? Are they tacking on any other fees?
Finally, above all, Never ever let a dealership payoff an old loan with a new loan. That's paying for two cars and only having one! Upside down car loans are the cause of a lot of bankruptcies.
I get it, it's the American Dream. A home of your own. You can raise your kids, start a garden. Never ever ever have to bang on the ceiling again to get your neighbors to stop...whatever it is they're doing.
So, how do you get there after bankruptcy? First, make sure you have a perfect payment history after bankruptcy. Either stay in the same job or have a good explanation for why you moved on. Banks love stability.
If you're two or three years after discharge, make an appointment with your bank. Tell them your goal and get their advice for how to position yourself for a loan. Find out how much money they'll want for a downpayment or see if you qualify for a subsidized downpayment loan. Ask questions and follow their guidance to get the loan for the house of your dreams.
If you're considering bankruptcy and worried about credit or post-discharge and not sure what to do next, call, text or email me. I've been practicing bankruptcy in Newport, Kentucky since 1996 and I never mind answering questions about debt or credit, especially from former clients. I love hearing your stories about life after debt!
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