Question # 15:  Can I rebuild my credit after bankruptcy?

Getting a house

Generally, mortgage brokers say that a person who filed bankruptcy can still get a mortgage as long as the bankruptcy happened over two years ago.  But, the mortgage brokers stress that the person's credit has to be perfect since the bankruptcy!

These comments are backed up by a recent San Jose Mercury News article which said that there are many loan programs available for those with bankruptcies discharged for two or more years.  Simply put, the creditors know that they don't have much to lose if you don't make your monthly mortgage payments.  They'll just take the house back!

Renting an Apartment

Many clients come to me and say that they would like to file bankruptcy, but they are afraid about not being able to rent an apartment in the future.  I have yet to meet a person who filed bankruptcy who was totally unable to rent an apartment.

Since bankruptcy wipes out your debts, you will be in a better position to pay your current bills and your monthly rent. 

What I suggest to clients is that you tell the landlord the truth about your bankruptcy.  But, also stress that you have never been evicted, you don't owe any money to former landlords, you pay your rent on time, and that you can provide references.  The bottom line is they just want to get paid.  If you can assure them that you will pay them, they will rent to you. 

Car loans

Many Sunday newspapers have at least one ad targeted to people who have filed bankruptcy! We've all seen ads that read "No credit?, Bad credit?, Bankruptcy? O.K." What has happened in America is that capitalism has taken over.  Just like high-risk auto insurance, a new industry has been created.  That industry is catering to those people who have no credit, bad credit, or bankruptcy. 

Some dealerships actually solicit those who have filed bankruptcy.  That's right.  Some dealerships actually send letters to people who have filed bankruptcy, telling them that they can finance them right into a new car!

Now let's be serious.  The interest rates which are going to be charged by any of these companies are not pretty.  But, they are not much worse if you filed bankruptcy, than if you were late several months on your bills.  Thus, for many people, as long as there are hungry creditors around, bankruptcy is a wise choice.

New credit cards

Generally, it is more difficult to get any new major credit cards soon after filing bankruptcy.  However, that is becoming easier as creditors become more hungry for new customers (also, see Question 2, Can I keep one of my credit cards). 

I think a recent Reader's Digest article put it best:

"Some banks are actually pursuing people who have recently filed for bankruptcy.  Why? When you file for personal bankruptcy, you can't file again for [8] years, so you'll have to find ways to pay your bills.  Secondly, those who have filed for bankruptcy have shown a propensity to run up high bills and not pay them off in full, which means interest charges will start to pile up."

So just like car loans, you may get some solicitations in the mail.

Secured credit cards

A good way of getting your hands on a major credit card would be to open up a bank account that offers a secured credit card, otherwise known as a check card or debit card.  These cards bear the logo of the major credit cards, but when you make a charge money is directly taken out of your bank account.  This way you can't overspend!

Generally, it may be easier to try getting a department store card, or gasoline card first. After you have used such a card for a good period of time, you may then be able to apply for a regular unsecured credit card again. Since they have limited uses, (you can't plan your Hawaii vacation with one!) and usually higher interest rates, the creditors are more willing to lend them to people who have had credit problems in the past. After proving you are responsible with one of these cards you may then want to try getting a major credit card again.  Don't be surprised if they give you a low credit line at first.

In closing I would just like to say, please be very cautious before you embark upon your pursuit to rebuild your credit.  It would be wise to have a clear financial budget, and a clear understanding of your exact monthly income and expenses before you enter the wild world of credit again.

I wish you the best of luck!