No one purposefully seeks to get a wallet full of retail, gas, and major credit cards, secure a car loan or purchase a property with the intent only to then turn around and immediately file for bankruptcy. Although there are many disparate reasons why people ultimately decide to file for bankruptcy, they all meet at the same crossroads where the amount of long-term debt outweighs the immediate potential and ability to pay it backwhile trying to provide food and shelter for oneself and/or loved ones.
Bankruptcy on Credit Report
It typically takes ten (10) years for a bankruptcy filing to stop showing up on one’s credit report. While a decade may seem like a long time to start anew, it doesn’t mean that the individual has to wait 10 years to start rebuilding his/her credit. In fact, it’s how the person handles his/her finances directly after the filing that perhaps makes the most impact on the individual’s current and future credit ability.
Since filing for bankruptcy usually means the individual had many debtors, it is not uncommon for a person who has recently filed to immediately start receiving letters and offers to apply for new credit cards or car loans. While this may, at first, seem like a bad idea for all parties involved, it actually makes a lot of sense to both the individual who just filed and to the companies extending the new offers of credit. These companies know that the individual not only cannot file for bankruptcy again throughout the next 8 years but also that he/she no longer has countless debtors where his/her money/payments must be shared. Anyone can read more about your love pets.
Buying a Home After Bankruptcy
In addition to it being feasible for an individual to secure a car loan and get a new credit card after filing for bankruptcy, it is also possible for the person to turn around and buy a house; however, this course of action is not recommended for at least 24 months after the filing. Securing a home mortgaged directly after filing bankruptcy will undoubtedly mean that the individual is being charged a much higher interest rate than if he/she waits two years and then applies for a home loan.
During that recommended two-year wait period following the discharge, the person can begin to build back their credit with a new secured credit card or other smaller loan(s) or by faithfully paying on already established debts that were not part of the bankruptcy filing, such as a previous car loan or home loan.
Making consistent and timely payments during those two years (and from then on) is critical to (re)establishing credit and being able to secure a mortgage at a decent and competitive rate. While everyone’s circumstance is unique and the reasons for not being able to pay back debt owed range from job loss and sudden or long-term medical challenges to divorce, addictions, or – quite simply, financial carelessness, it is possible to restore one’s credit and start anew. Being able to pay back what was borrowed or what is owed is always the ultimate goal; however, when this is not feasible, sometimes filing for bankruptcy is the only and last option.
For a person wanting to buy a home who is also considering filing bankruptcy, the best scenario would be for him/her to do the following the actions:
1) wait at least 2 years after the bankruptcy discharge to apply for a home loan, 2) immediately start rebuilding credit with small loans, 3) consistently pay bills on time, and 4) make a conscientious effort to save money (having a sizable and impressive down payment will also help to reduce the home loan interest).