St. Louis Bankruptcy Attorney Tobias Licker About Credit After Filing for Bankruptcy:
For most people, bankruptcy is a last resort. Usually a series of financial problems begins as a slow downward spiral, and then the crisis accelerates to a point of desperation. You become so used to being told “no” when applying for credit that you assume you’ll never have credit again.
So many consumers are surprised when the credit card offers start rolling in as soon as the bankruptcy is finalized. And even though their debt has been discharged, they still have the mindset of desperation and eagerly grab any card that’s offered.
Can you get one or more credit cards after bankruptcy? For most people, the answer is “Yes!” However, a better question is “Should you get this particular credit card after bankruptcy?”
It’s important to remember that the credit card companies aren’t offering you a card because they kindly want to help you re-establish your credit. They’re making the offer because they plan to make a big profit from you. And the “bad credit card” system is set up for them to make money whether you pay the bill on time or not.
A not good option: the unsecured credit offers in the mail
Bankruptcy represents a fresh start with a clean slate. However, once your bankruptcy is finalized you no longer have the option to discharge debts in bankruptcy for eight years through a chapter 7 and 4 years through a chapter 13. So, post-bankruptcy creditors can aggressively pursue any delinquencies with tactics such as wage garnishment, interception of tax refunds (if the debt is for medical bills in Missouri), and even liens against bank accounts or property after they obtained a judgment.
Most “bad credit cards” offer low limits and high fees. For example, a typical card may have a $300 limit, with $250 in various fees assessed before the card is ever used. These assessments include processing fees, membership fees, handing fees, late fees, delinquency fees, and even fees for paying by phone. And if one of these fees is assessed on a date when you’re too close to your limit, they’ll charge a hefty over-limit fee as well. While these cards are technically “unsecured”, you’ll have to pay down the fees before you can use the card.
A better alternative: secured credit card
A secured card requires you to open a savings account which is then used as “security” for the charges on the card. The card’s limit is determined by the amount you deposit, and fees may be substantially lower. After using the car for some time and paying timely, your bank will often offer you another credit card option that is not secured and has a higher credit limit.
Should I get a new credit card at all?
Many financial experts advocate having no credit card debt. However, in the modern world, at least one credit card may be essential, especially if you need to purchase airline tickets or rent a car. Many clients wish to have a credit card for emergencies and to be able to buy groceries even when no income should be available. Even though some clients tell us that they do not wish to get into the credit mess again, we do recommend talking to their bank about getting a secured credit card. Even though the credit appears to be better after filing in many cases, the credit is still low and should be improved by using credit. As higher your credit scores goes as less interest you will have to pay on home mortgages and car loans. We recommend using a secured credit card up to 40% or 50% of the credit limit and then paying it off each month. We believe that this will establish good credit faster than keeping a balance each month.
Some cards are better than others. For example, most companies charge up to twenty percent or more APR on bad credit cards. But there is at least one major issuer that will reset the APR to nine percent any time the balance is paid in full. By paying the card in full every few months, you can save thousands of dollars in interest payments and give your credit score a real boost. You can compare credit cards online and even search for consumer reviews before choosing your card.
Once your bankruptcy is finalized you can get a credit card. Just make sure that the card meets your needs and will help you rebuild your credit rating under reasonable terms.