One reason that people sometimes shy away from bankruptcy is because they’re worried that it will mean they can’t get a loan again. They may have plans for their future that include taking out a mortgage loan to buy a home or using an auto loan to get a new car. They may be interested in student loans so that they can pay tuition and improve their education. They’re worried that a bankruptcy filing will make all of this impossible.
But that isn’t how it works. Yes, bankruptcy will cause a temporary reduction in your credit score. This can limit your access to lines of credit at the time. But it does not limit that access forever, and all you really need to do is build your credit score back up so that you can qualify for the loans again.
How do you do this?
The key is to make wise financial decisions moving forward. If you do have any payments that you still owe – such as utilities or existing loans that weren’t discharged in bankruptcy – make all of those payments on time. This demonstrates to lenders that the bankruptcy helped you re-organize your finances or reduce your debt and that you are now a reliable borrower. The lender is going to be more concerned with whether or not you can make payments in the future than with what you did in the past.
Another option is to intentionally use credit to demonstrate your ability to make these timely payments. With a down payment, you can sometimes qualify for a secured credit card even if a lender won’t give you a traditional credit card. The down payment gives the lender more security because they know they can retain that money if you stop making payments. But borrowing money on the secured card and then paying it back every month does help your credit score slowly work its way back up.
Bankruptcy is a useful tool if you know how to use it correctly. Carefully look into all of your legal options and the steps you can take.
