How Filing For Bankruptcy Affects Your Credit Score

Those who consider filing for bankruptcy have numerous questions regarding their future, and they wonder if they’re making the right decision for their particular situation. First of all, once a bankruptcy appears on your credit report, it’ll remain there for 10 years. While you might be able to achieve some amount of credit, because you declared a bankruptcy, it’ll negatively impact your overall credit score with the 3 major credit bureaus.

One question in particular that’s uppermost in the minds of those who declare bankruptcy, is their ability to obtain additional credit cards down the road, as well as what their credit rating is for buying a home or any other big purchase. If a person owes thousands of dollars on a credit card, it must be listed on their bankruptcy forms as a debt. These forms are filed under penalty of perjury and if fraud is detected, the bankruptcy process will come to a screeching halt.

Perjury is a federal crime, and you’ll end up having to pay a hefty fine or doing a number of years in prison, if you willing and knowingly falsify any documents that you submit in your bankruptcy case. The Internal Revenue Service takes bankruptcy fraud very seriously, and will prosecute those who commit it to the fullest extent of the law. They have enormous resources at their disposal, and can track down anyone, anywhere regardless of who they are or where they hide.

As for your credit cards, you won’t have to list them on your bankruptcy forms as debts unless you’ve made purchases with them. So it’s up to you whether or not you choose to keep or discard them. If you decide to retain them, you may not have them in your possession very long because your particular credit card company might decide to cancel them as a precautionary measure, since you’ve proven that you can’t manage your spending habits.

While a person can still obtain a credit card even after filing a recent bankruptcy, their credit limit – if the person gets one – will be very low. In addition, the person can expect to pay exorbitant interest rates because (s)he is a much higher risk.

Those particular type credit cards should be avoided entirely, because you’ve proven your inability to manage them properly. The best credit card for someone who has recently filed for bankruptcy is a secure card, and many banks offer them. The way they usually work is you deposit a certain dollar amount, say $200, into an account, and that $200 is your credit limit.

If you use your secure card responsibly, after a period of time, the bank may offer you a regular Visa or MasterCard with a low credit limit at first. As you prove yourself over time by handling your new credit card responsibly, your credit limit and credit score will increase accordingly.

There are those who believe that if you declare bankruptcy, you won’t be able to obtain a loan for a down payment on a home for at least the next ten years. This is simply not true. Usually after only two years, you should be able to qualify for a loan. Even though the bankruptcy filing will remain on your credit report for 10 years, lending institutions will take into account how responsibly you’ve handled your financial affairs since you filed. If they feel you’ve done well, they’ll more than likely offer you a loan based upon your good faith and credit.