Consumers have two bankruptcy choices, Chapter 7 or Chapter 13, according to Senior Magazine Online. Chapter 7 wipes away most debts, excluding obligations such as child support and student loans. Chapter 13 involves a structured repayment plan. Both types of bankruptcies appear on the consumer's credit report, and both have negative influences on future credit applications.
Types
Credit comes in two main types, known as secured and unsecured accounts. Law Info, a legal information website, explains that a secured account is backed with collateral, most commonly a home or vehicle. An unsecured account is not backed by anything other than a promise to pay. Most credit cards and personal loans fall into this category.
Effects
Recent bankruptcy is a red flag to many lenders because they fear the person does not manage his finances well and is a poor repayment risk. Many consumers rebuild their credit carefully after bankruptcy, but it takes time and new accounts to prove fiscal responsibility. A low post-bankruptcy credit score makes it hard to open the accounts necessary to rebuild credit.
Considerations
Creditors are much more likely to open a secured credit account, rather than an unsecured credit account, for someone who has recently been through bankruptcy. A creditor will issue a credit card immediately if the consumer is willing to back it up with a bank deposit that covers the credit limit. This is known as a secured credit card account, according to MSN Money columnist Liz Pulliam Weston. Many lenders also will give car loans shortly after bankruptcy, but they charge higher-than-average interest because bankrupt consumers are considered sub-prime credit risks.
Time Frame
Bankruptcy stays on a person's credit report for up to a decade, Pulliam Weston advises, but much of its impact is lost over time. Creditors pay the most attention to recent transactions, so people with bankruptcies at least a year old can usually get credit at a fair interest rate if they've opened secured accounts and made every payment on time. They can usually convert secured credit cards to traditional accounts after a year or two of good payment history is established, Pulliam Weston explains.
Warning
Creditors and scammers sometimes take advantage of people who want to get credit quickly after bankruptcy. The Federal Trade Commission warns against paying upfront fees for a loan because the money is unlikely to ever materialize. Read credit card terms carefully to identify any excessive fees.
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