Credit After Bankruptcy
Recently, an associate professor of law at the University of Iowa, Katherine Porter wrote that “credit solicitations of recent bankruptcy debtors is rampant.” She studied data collected by the Consumer Bankruptcy Project and found that nearly every debtor receives credit offers shortly after bankruptcy. Most offers are for credit cards, however, some are for mortgages and car loans.
It is interesting because this phenomenon contrasts with the picture painted by the credit industry and things most of us read and hear about from credit counseling agencies and debt settlement negotiators. We’ve all heard proclamations throughout society that “bankruptcy ruins your credit” or “you will never be able to finance a house” or other similar doomsday forecasts (I’ve discussed before about how bankruptcy is a first step in the rebuilding of credit since most who need bankruptcy already have bad credit or are about to without bankruptcy).
The data collected by the Consumer Bankruptcy Project support what I and many others have been saying for years. It is not only possible to obtain credit after bankruptcy, it might actually be easier to obtain credit after bankruptcy than after other non-bankruptcy options are attempted (usually unsuccessfully).
As Professor Porter says in her article, “Bankruptcy Profits: The Credit Industry’s Business Model for Postbankruptcy Lending,” “despite debtors’ trepidations and creditors’ warnings before bankruptcy, borrowing after bankruptcy is not only possible after bankruptcy, such activity is actively encouraged by the credit industry. These data suggest that creditors’ threats to refuse credit after bankruptcy are hollow. The credit industry may tell consumers that they will not lend after bankruptcy and that paying the debt is the only option to maintain their credit access, but such statements are largely untrue. Rather than resulting from a marketing mistake, the widespread availability of postbankruptcy credit more likely reflects a careful calculus about the profits of lending to consumers vulnerable to financial distress. The bankruptcy system shapes creditors’ ability to profit from former bankrupts, and law can play a critical role in defining the appropriate boundaries of credit solicitation.”
November 14th, 2007 at 3:37 am
Will this assessment of credit availability after bankruptcy still be true given the recent tightening of credit in the industry overall? It appears that the underwriting pendulum has swung back to the extremely conservative side, and even people with good credit are having a difficult time getting approved for home loans these days. This is a very recent development in our economy that has not yet been seen by this generation.
December 8th, 2007 at 2:59 pm
Is it possible to start rebuilding credit WHILE in bankruptcy? My wife and I are in a Chapter 13. We are 49 years old and pay off the bankruptcy within the next few years and start over (financially). Any suggestions such as small collateralized loans, secured credit cards, etc.
December 12th, 2007 at 11:55 am
Mr. Brandt - while I agree with what you say, the problem is that people who already have too much debt aren’t going to get money loaned to them even without filing. The tighter money policy doesn’t change my contention. Bankruptcy is still the first step in the rebuilding process.
J. Mitchell - if you are in Chapter 13, many lenders view your Chapter 13 payments as establishing a good payment history post-bankruptcy. Therefore, by paying your Chapter 13 payments, you are already on the road to re-establishing your credit.
December 20th, 2007 at 10:23 pm
How much personal credit does a bankruptcy damage when filing as an s-corp?
Is it really possible to keep them separate?
January 6th, 2008 at 3:48 pm
I am in PA, currently in a Chapter 13. Is it possible to refinance my mortgage here while in bankruptcy?
January 19th, 2008 at 3:21 pm
Davis - Most of the time in an S-Corp. situation, it’s a personal bankruptcy you need to file. Corporations don’t get a discharge in bankruptcy. Bankruptcy is one way to dissolve a corporation, but there are other ways to dissolve corporate entities outside of bankruptcy. The problem is that most vendors get personal guarantees from the owner of the S-Corp. and thus you, individually are likely liable for the debts. It’s possible this isn’t the case, but my experience in most of these situations is that the individual needs to file the bankruptcy, not the corporation.
January 19th, 2008 at 3:23 pm
A. Filling - I can not give you any specific advice. Is it possible? It is possible. You should really check with your attorney specifically to find out what steps need to be taken in bankruptcy court.
February 27th, 2008 at 4:39 pm
My husband and I will be filing Chap 13 next week, we live in Northern Calif.
I have two qustions;
1. How does getting a high paying job after the bk filing, impact what is ordered to paid back? I have been umemployed for over 8 months.
2. We were forced to sell our home 9 months ago and have been living off the profit from the sale of our home ever since. (No money left) What is the impact of not using the profit from the sale of our home to pay off bills but instead using it to live? Up to 3 months ago we were current on all bills.
Your advise and opinion are greatly appreciated.
February 27th, 2008 at 6:04 pm
Hi, we filed a chapter 7 and it discharged in Aug 07. We kept our home, but never signed or sent the reaffirmation agreement to the lender. Our situation has now changed and my Husband has transferred to a job that is requiring him to make a long drive. The gas and the wear and tear on the car have made us decide to move closer to his work. We have already found a home we are going to rent for 2 yrs. My question is what happens to the Mtg? Can we walk away? Will it just be part of the original Bankruptcy? Should we try to get them to do a Deed in Lieu? Thanks
February 27th, 2008 at 8:44 pm
Kari - since you did not enter into a reaffirmation agreement with the mortgage company, your personal liability was discharged and if there is money owed to the mortgage company, it is discharged and they can’t collect it from you.
A deed in lieu could be beneficial, but you’ll want to consult a real estate lawyer on that one.
March 3rd, 2008 at 6:27 am
Hi, I’m in an odd situation and would like your feedback. I am under a contructive eviction from the condo/townhome that I own (built in the 1960’s). In early 2006 an under ground water line broke and damaged the building’s foundation. resulting in major structural problems four 4 of 10 units. The association dragged it’s feet in initiating foundation repairs to the point the units were condemend by the City in order to get them repair. As a result of the downstairs & upstairs of the condos have settled 3 - 4″. The Association will not repair the framing (they feel it’s more of a cosmetic issue) only the interior floors & walls. Hence a lawsuit brought by the homeowners is pending.
One of the homeowners declared bankruptcy and let her unit go into foreclosure. Given the structural issues the rest of us are concerened we’ll be left holding th bag on a proptery we can’t give away. I am considering filing bankruptcy and letting the condo got to foreclosure as well. If I do this, what’s the potential impact to any resulting damages that come out of the lawsuit?
March 7th, 2008 at 3:34 am
I am a real estate investor and previous mortgage lender (previous to this melt down and the contricting lending rules). I have not had any substantial income now for 7 months. I own various companies ( S& C-corps, llc’s and lp’s to hold investments with partners)
If I file for personal bankruptcy- how does that affect my companies and more importantly my investment partners?
I am married and live in CA. Most all of the debt is in my name- the house, credit lines, credit cards, etc. Do both my spouse and I have to file or can just one of us file?
If I am considering mortgage modification on my primary-do I do that before, during or after bk?
Thank you for you time.
March 8th, 2008 at 7:27 pm
I went through foreclosure a year ago as well as total insolvency. I am now hounded by past creditors including a company that was the 2nd mtg on the house. I mistakenly thought they were paid off from the foreclosure.
I am now renting, own nothing but an old car and am living on a small fixed income. Should I file bankruptcy or try to work out a payment deal on something I don’t own anymore. Can my fixed income be garnished?
Thanks
March 9th, 2008 at 4:01 pm
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March 10th, 2008 at 3:17 am
I am thinking about filling for bankruptcy. I am in my 50’s and recently divorced and lost most of my 401k in the settlement of divorce.
I maxed out all my credit to servive during the separation.
I need to save as much as I can for my retirement and my credit card payments dont allow for savings. My creditors reduced the interest but payments are still really high.
Sould I go for a dept reduction program offered by some law offices, they negotiate a lower balance due and all debt is clear in a few years or file for bankruptcy.
March 11th, 2008 at 11:25 pm
Hi Richard, a family member of mine has recently filed a chapter 7 bk and is in the final stages of being discharged. Recently they have been approached by a financial services company that claim they can give her a fresh start, that is clean her credit of bk, judgments, foreclosures.
They have references/testimonials from past satisfied clients. Have you ever heard of such a service and what do you suggest she do ? Thanks
April 10th, 2008 at 12:51 am
you talked about saving for long term can you file if you have a 401k but in over $10,000 in a law sue debt that you can’t pay cause you don’t make enough money.
April 29th, 2008 at 7:47 pm
I recently finished paying my ex-husband monthly maint. The total pay out was $85,000 over four years. Unfortunatley, I used my good credit to borrow the money from credit cards. During that time I also lost my job for a time. I am now employed in sales. I can barley make my monthly minimums. My credit score has dropped from the high 700’s to the low 500’s. My family thinks I should investigate bankrupcy. One of my fears is that I have a 7 year ARM on my home that will become adjustable Nov. 2010. Will I be able to refinance my mortgage after a bankrupcy?
May 3rd, 2008 at 12:11 am
Me and my wife live in Ohio and we are filing bk chapter 7 tommorrow! How bad is our credit going to be til it discarriages?
May 3rd, 2008 at 4:35 am
I am disabled and live on SSI. An aggressive collection agency re: a 20yr+ state student loan is forcing me to consider bankruptcy; but I was told that even if I file, I’ll still owe the debt. I am totally ignorant about Law and this doesn’t make any sense to me. I’m not sure what would be my best course of action. Any suggestions? would be very appreciated. Thanks!
May 5th, 2008 at 5:59 am
Hi, I filed chapter 7, went to court feb 27th 2008, i’m awaiting discharge papers, my question is once you file the chapter 7, what is your credit score? does it remain what it was when i filed, or does it go to a certain score, reason being i gave back both of my cars, and on my credit report my score was consistently going down because i was not making payments on the cars.
May 8th, 2008 at 8:33 am
I filed Ch 7 Feb 2004 & discharged Jan 2005. My question is about my house. It was included in the filing, and according to the company holding my mortgage (A debt collector, not a mortgage company), they will not reaffirm my debt. I did reaffirm 3-4 months of payments I missed, but I believe that was just for that amount I was past due. I found out that they actually show as a negative on my credit report because they show the debt as being charged off. My question, is I owe on the house more than it’s worth in a slow sell neighborhood. A bank has offered me a Home Equity Line of Credit. If I take it, I will then owe for my house. But, would it be better if I walk away in a year or two and rent to own? How long am I able to walk away? How much more adversly does that impact my credit rating? I am unsure what to do. Can you help? My lawyer is no longer available for questions.
May 10th, 2008 at 8:31 pm
My husband and I are in the process of filling chapter 7 ,but we also have another problem. We don’t know if we should had our home to it or try to hold on to it. Our payments were 939.but now it is 1,007 . And we are 3months behind with the 4 if we choose to let it go. Should we stay and ride this out until I find part-time work. And at this time we are living off of 1 income and 2 kids.
Also, if we do keep the house and file chapter 7, will the mortg company be more willing to re-fi with us. Since we won’t have any debt but the house.
Our car will be paid off in Oct.
Please advise… Thank you
May 11th, 2008 at 12:16 am
All of you have a lot of very good questions, but far too complicated to answer in a blog. I would strongly advise you to seek legal counsel, if you haven’t already done so.
We can be reached at 1.888.743.5787…
May 21st, 2008 at 7:09 am
Hello. So, I am considering filing bankruptcy, however, I am concerned how it may affect my job. I hold a federal position, however, prior to taking the position, I supported myself through college and a year or so thereafter, henceforth, my need to file for bankruptcy. While I am employed, part of that employment is based on a background investigation. Has anyone any experience in this matter, regarding having filed bankruptcy in a similar position? Thank you.
May 26th, 2008 at 7:01 am
I just signed chp.7 Bankruptcy papers today, & was told it would be about 6-9 months before it’s discharged, after I have the creditor meeting & another bankruptcy class. I’ve been researching secured credit cards & ways to rebuild my credit. I want to be prepared to do the best thing after discharge. How can I make sure that a credit card company is reputable? Solely for purposes of rebuilding credit, what else can I do besides getting 1-2 secured credit cards (cards that report to the cr.bureaus)? I have no desire to charge up a storm; I just want to restore my credit score to a healthy number.
June 3rd, 2008 at 9:31 am
I filed chapter 7 bankruptcy in January 2001 which was discharged. I am now in financial peril once again - my husband and I both lost our jobs the same day and had to go on foodstamps for a month, and we both have medical issues. Since the change in bankruptcy laws, can I file chapter 7 bankruptcy this year or will I have to wait until next year? What complicates our situation is my husband filed bankruptcy last year with his ex-wife. I sent in a request for information online, any advice in the meantime is appreciated.
June 9th, 2008 at 2:58 pm
Michael - there are anti-discrimination provisions in the bankruptcy code. If your employer fires you (especially since it’s a governmental agency) you could have a cause of action for wrongful termination against the agency.
June 9th, 2008 at 2:59 pm
Ilza - I think you are taking the right steps. Keep in mind, this is a process and one that doesn’t happen overnight. As far as reputable providers of secured credit cards, I would review information on the Federal Trade Commission’s website at http://www.ftc.gov.
June 9th, 2008 at 3:02 pm
Nancy K - If you and/or your husband filed a chapter 7 bankruptcy within the last 8 years, you are not eligible to file another chapter 7. You could be eligible for chapter 13 relief once one or both of you are back to work, however. It sounds like you might be eligible to file a chapter 7 within a year or so, while your husband would have to wait another 7 years. But, you could file a joint chapter 13 case as soon as you have sufficient income to cover your living expenses plus a little bit you could use to fund a chapter 13 plan.
June 11th, 2008 at 5:21 pm
when you decide to sell your home while in a chapter 13 bankruptcy, will the judge dismiss your bankruptcy case or can you continue to make payments, and if so will they allow for the payments to be restructured to fit the lower debt owed?
June 20th, 2008 at 7:29 am
I had to file a chapter 7 and was discharged in August of 2001. My husband was ill and passed away, so we had a loss of income. I did not include my home in the chapter 7. It is now 2008, with loss of income, but still working full time, I am unable to keep my home. I am 3 months behind. When will I be able to file another chapter 7. Is it 8 years from the filing date or discharge date. If I can’t, can I do a Chapter 13. If I include my mortgage along with credit card debt, and do a chapter 13 instead, will I have to pay on the mortgage also. How it determined how much to pay back in a Chapter 13?
June 23rd, 2008 at 3:21 pm
We are considering filing bankruptcy, with the primary issue being the enormous amount of debt (primarily using credit cards to offset job setback and investment losses). If we could work the amount of debt to a reasonable level, we might be able to recover with our current salaries. However, we don’t know if some of the debt elimination programs might suffice enough to recover enough to avoid bankruptcy. How do you know which option makes sense? Also, is there a way to pursue bankruptcy that would reduce the debt only, but allow us to keep our house.
June 27th, 2008 at 5:30 pm
The IRS claims I owe them $45,000 in back taxes, fines & penalties. Due to my low income they determined it is uncollectible but I must pay a token amount of $25.00 a month. They did file a federal tax lein on me. I had excellent credit score prior to this, but now I can’t get financing for a house or car which I need badly. I do pay all my other bills in full and on time. How would filing bankruptcy benefit me?
June 30th, 2008 at 11:18 am
In limited circumstances it may be possible to discharge your tax liability in bankruptcy. Or, you could possibly restructure it in chapter 13, though it sounds like a chapter 13 might be tough for you because of your low income. Give us a call and we’ll give you an opinion on whether or not we think the tax debt you owe is dischargeable in bankruptcy.
July 4th, 2008 at 6:15 am
If I file for a chapter 13 for myself, and not include my wife. What happens with the joint loans? The majority of my unsecured debt is soley in my name. Would we be better off, for just me to file a chapter 13?
July 8th, 2008 at 9:42 am
We’re getting ready to file bankruptcy - mainly because of a house payment we cannot afford any longer. How much money can I have in savings without them taking it when I file? Also - If I have credit cards that do not have a balance - do these have to be closed because I’m filing?
July 19th, 2008 at 10:21 am
I was forced to stay home due to pain in my right shoulder on 11/1/2007. I had savings, which were used up by March 2008. Since then my auto lender and a credit card collection company have filed law suits against me. I filed bankruptcy in 1992 and had hoped not to file again. However, my disability benefits ran out and the state of New Jersey put me on General Assistance. The public (legal services) lawyer does not seem to know how to protect me from harassment from lenders. I need to keep my car to get to the doctor, etc. I am also applying for jobs. Will a bank hire me if I have all this going on financially? I need protection from future garnishment. Also I have a very old debt from American Express. I was told that anything over 7 years old I do not have to respond to. Is that why they send me something once every couple of years? Also, a moving company took my desposit and did not show up. Can I collect? How? I really need help.
July 21st, 2008 at 1:01 am
I am going to be filing a chapter 13 but I do not have a car right now. I have been riding my bike and walking to work. I need a car to get to work and back. How long do I have to wait until I can get a car loan after filing for a chapter 13? Or would itbe better to get it right away be for the chapter 13 filing.
July 23rd, 2008 at 8:16 am
My husband lost his job in the last few weeks. My question is, if we file Chapter 7 will I be able to keep one of my credit cards that I’ve had for the last 7 years. 0 balance. I talked to the credit card company. The man I talked too said he was only a little familar with bankruptcy. If I filed he said that my CC account would be closed. 0 balance, and a history of good credit did not matter. Is this the case with all credit cards when you file bankruptcy?
August 2nd, 2008 at 11:02 am
I filed for bk in 1995, sence then we have done very well for ourselves. I make about 55k a year, and will be losing my job at the end of 2008. Can i file for bk again, or do we have to tuff it out.
August 6th, 2008 at 3:42 pm
If we file bankruptcy how will our son get money to finish school? We have $16,000 out for one child, in his 5th & last year. We have $24,000 for another that is just starting his 2nd year. They will only give him $5400 as an unsubsidized. We have to take the rest out in part plus loans.
August 9th, 2008 at 11:24 am
If we are current with our mortgage, does it have to be included in the bk??
August 12th, 2008 at 7:03 pm
Most of our debt is in my name. Can I file bk vs jointly to help save my spouses credit? How does that affect our home since that is in both our names?
August 13th, 2008 at 8:25 pm
me and my husband are both employed currently, he has full-time job and i work part-time, we are not behind of any bills but could hardly make both ends meet every month, and eventually will never make it in the future. pls. help us which chaapter is best for us to file, we have 1st and 2nd mortgages, we want to keep everything because we have four children our property tax as of now has not been paid yet, we dont have a fix rate yet, will we be able to get a fix rate for our mortgage after filing bankruptcy?