Debtors often ask when they can begin to obtain new credit after filing a bankruptcy. Almost invariably the debtor is told that he/she can begin obtaining new credit immediately after commencement of his/her bankruptcy proceeding. While this is true, there are a number of things the debtor may want to consider when considering what types of credit are right for him/her.
First, consider any existing financial obligations. The bankruptcy discharge eliminates many kinds of debts, however, most debtors still have certain bills to pay for things like housing and utilities. There are some types of debts that may not have been discharged at all, including domestic support obligations and certain debts to governmental agencies. Further, if the debtor reaffirmed any collateral he/she should consider that ongoing payment as part of the budget.
Second, the debtor should consider the offer. Debtors are likely to get a number of unsecured loan and credit card offers immediately after filing for bankruptcy, and most of the offers are laden with high interest rates and predatory terms. Theses offers come for a number of reasons. For starters, as the individual has just filed a bankruptcy the creditor knows that any debt the individual incurs cannot be discharged in bankruptcy for eight years. Further, the individual has already shown signs of financial difficulty and lenders make the most money from individuals who carry balances on their cards.
When considering the offer, look for a number of things. Look to the interest rate. However, keep in mind, a high interest rate only affects the individual if he/she carries a balance on the card. If the card is paid in full each month this should not present too much of a problem. Next, be wary of special terms or interest free periods. These are incentives to get you to obtain the card and if you still have a balance at the end of the introductory period you may be charged fees dating back to the original purchase date. This can be a huge blow to someone trying to get back on their feet. Be wary of accepting too many offers. This can be hard to manage and control and may actually hurt your credit more than it will help.
A debtor may want to consider a secured credit card, secured by a deposit or a bank account. These generally have low limits and in the event that the debt is not paid the creditor simply takes the money from the account. This is a very controlled way to work on re-establishing credit.
If you have questions about this, or would like to schedule a free consultation, contact a St. Louis Bankruptcy Attorney Today.