If you are considering bankruptcy, you have probably thought a lot about how a bankruptcy filing will affect your current financial situation. But one consideration that is often neglected by potential bankruptcy filers is the reality of life after a bankruptcy discharge. Your debts may be gone, but there are lingering effects that will follow you for some time. One of those effects is your ability to obtain credit. You might have assumed that a credit card wouldn't be an option after your bankruptcy case discharges, but that isn't always the case.
How does a bankruptcy affect my credit score?
If you decide to declare bankruptcy, the effect on your credit will be immediate. Once you enter bankruptcy, your ability to apply for or use credit will be frozen for the duration of your bankruptcy case with limited exceptions.
But this isn't the only effect you will feel on your credit. Filing for Chapter 7 or Chapter 13 bankruptcy will cause an immediate drop in your credit score – in some cases, by hundreds of points. How long the negative effect of a bankruptcy will stay on your credit score depends on the type of bankruptcy case you filed. A chapter 7 filing will remain on your credit score for 10 years from the filing date. A chapter 13 filing, on the other hand, will remain on your score for 7 years.
The good news is, after your discharge the freeze on your ability to apply for credit will end. The bad news is that your credit score will likely prevent you from accessing most traditional credit cards. However, there are some lenders that are eager to you a new card in the mail depending on your income. That's because given your discharge, you are barred from filing for bankruptcy again for another 7 years. These cards also typically come with a sky-high interest rate and low credit limits.
Secured Credit Cards
One option other than a traditional credit card is what's known as a secured credit card. Standard credit cards allow you to borrow against an unsecured revolving line of credit. If you default, there is no secured asset for the credit card company to try and collect like with a mortgage or car note. Secured credit cards are different in that you are required to make a minimum deposit up front to use your card. For the most limited cards, your credit limit will be the exact amount you deposited. Other cards will set your credit limit as a percentage or multiple of your deposit. Some of these secured cards come with high monthly fees that can eat up your deposit. If you get behind on your payments on your secured credit card, the card company will take your deposit in order to satisfy your debt. Any remaining balance would be an unsecured debt just like any other credit card.
The Risks of Credit Card Debt After Bankruptcy
For many, operating with credit is a necessary part of life. However, the biggest risk of new credit card debt after your bankruptcy discharge is that it can quickly put you back into the same financial pit you just crawled out of. And this time, you will have to wait years before you have the opportunity to file for bankruptcy protection again. In some ways, it is easier to be overwhelmed by credit card debt after your discharge than before. That's because the credit you will have access to will come with exorbitant APRs and the potential for hefty fees. Discussing your plan for accessing credit after your discharge is an important conversation to have with your attorney before or during your bankruptcy.
Questions about life after bankruptcy? We Have The Answers
It is understandable if you have a lot of questions about filing for bankruptcy in Nevada. The experienced bankruptcy attorneys at Vohwinkel Law have the answers you're looking for. Contact Vohwinkel Law today for a free consultation.