Behm Law Group, Bankruptcy Attorneys

According to a survey conducted by YouGov, far more adults (62%) are worried about the effect bankruptcy would have on their credit reports than the shameful stigma attached to declaring bankruptcy (26%). If you are considering bankruptcy in the Mankato, MN area, Behm Law Group wants to help you understand what declaring bankruptcy means for your credit profile.

How does bankruptcy affect my credit score?

Your credit score is an easy way for you and creditors to calculate the health of your credit profile. Declaring bankruptcy means that you are in a situation where you are unable to make payments on your debt, so it is viewed as a very negative event on your credit report. But the overall impact it has depends on your entire credit profile. If you had perfect credit, you would probably see a large drop in your credit score. However, since most people who declare bankruptcy usually have poor credit and several other negative marks on their credit reports, bankruptcy might make a relatively small dent in a credit score.
Additionally, bankruptcy stays on your credit report for up to 10 years after you file and will continue to affect your credit score until it is removed. Even so, that doesn’t mean you are unable to obtain new credit in the meantime.

How soon can I qualify for new credit?

Bankruptcy is a means of clearing your financial slate and it will take time for you to rebuild your credit history to the point where creditors are willing to grant you a line of credit. Generally it takes 18-24 months of full, on-time payments before you will be able to qualify for most loans. Of course, creditors also take into account your income, debts and assets so you may be a viable candidate for new credit sooner if your financial situation has greatly improved since you declared bankruptcy.

Here are some general timelines for a few of the major types of credit:
• Credit Cards: This type of credit is usually available immediately after a bankruptcy because credit card companies can justify charging you higher interest rates and fees if you have a checkered credit history. Be wary of opening new credit cards, however, as you might easily find yourself deep in debt again. A secured card is a safer way to begin rebuilding your credit because it can be used like a regular credit card but it requires a deposit upfront to cover your credit limit.

• Auto Loan: Auto loans are also often readily available soon after filing bankruptcy thought the interest rates will be quite steep. If possible, you might want to wait until you can qualify for a loan with a more competitive interest rate to avoid paying more in interest over the life of the loan.

• Mortgage: While some lenders will give you a home loan right after filing for bankruptcy, it is best to wait at least two years before applying for a mortgage. Not only will you have time to develop a good credit history, lenders will usually leave your bankruptcy out of the consideration and offer you better interest rates. Plus you will also be able to save for a down payment and decrease the amount you need to take out in loans.

Though bankruptcy may cause your credit to take a hit immediately after filing, declaring bankruptcy can actually help you in the long-term by wiping out most, if not all, of your debt. This allows you to start managing your money better and rebuilding your credit without the burden of monthly payments. If you are ready to start over financially, call Behm Law Group for assistance with declaring bankruptcy in the Mankato, MN area.