Establishing credit after bankruptcy can be a daunting task but is possible in varying stages and time frames, depending on what type of bankruptcy has been filed. Bankruptcy is a word, that most people would rather never have to entertain in their vocabulary, regarding personal finances. There are times, however, when this legal method of removing debts must be taken in order to have a fresh start unencumbered by financial responsibilities that can never be reasonably met. Chapter 7 and chapter 13 are the two options that individuals have when making the difficult choice to declare that they are going bankrupt. There are different legal requirements between the two and each has its own set of positives and negatives that anyone considering this option must carefully analyze.
Chapter 7 is relatively simple in that, anyone who claims this legal option has most of his or her debts wiped away without having to repay them in the future. There are, of course, times when this option is all there is left to choose and it is the best way to find a fresh start financially. Divorce, unforeseen tragedies, such as illnesses and loss of income, are just a few of the many things that can happen to force someone to go bankrupt after having tried all other avenues of reprieve. "But my God shall supply all your need according to his riches in glory by Christ Jesus." (Philippians 4:19) This option has been looked at as a way to have a new beginning after being devastated by a mammoth debt load. While it is true that going bankrupt does offer a way to walk off from most debts, it also has its downside when refinancing after bankruptcy or rebuilding personal credit status.
Those who go bankrupt will endure having the legal action reported on all financial reports for ten years. Those who are fortunate enough to still have a job after losing so much will have to learn to live totally on a cash basis and pay as they go. They will have no credit to maneuver with and must depend on any emergency cash they set aside for unexpected bills or needs. Establishing credit after bankruptcy can be difficult because most credit institutions view those who have claimed a chapter 7 as high financial risks. In fact, those who file for chapter 7 are viewed more negatively by creditors than those who file for a chapter 13 since chapter 7 allows debtors to walk away from most debts. After 10 years of no credit, a person may begin to rebuild a financial status. However, for transactions such as refinancing after bankruptcy, most will pay very high interest rates for several years before receiving reasonable interest due to improved, personal credit.
For individuals who file for chapter 13, the legal requirements are quite stringent regarding income, repayment stipulations and personal lifestyle. This legal option requires the person who goes bankrupt to subject themselves to court appointed management of personal finances which includes expenditures on housing, food, transportation, education and other family matters. Court managed repayment schedules are also stipulated to pay back creditors over a period of time which can help in establishing credit after bankruptcy. This option is otherwise known as 'reorganization' and refers to redistributing personal finances according to a court mandate. A person may suggest to the court what he or she will need to live on including any educational costs for children and any unusual expenses. With the court approval of this amount, the rest of the income is divided among existing creditors. A pay off period for chapter 13 reorganization lasts from 3 to 5 years. A poor credit rating will remain on most people's records for up to 7 years with this method.
Most creditors view this form of legal option in a more positive light because of the attempt at repayment that is obvious when bankrupt individuals choose a chapter 13 legal filing. Interestingly, though, while those who file chapter 13 may not hit the bottom in establishing credit after bankruptcy, because of their efforts, a person who files chapter 7 has a better chance at repairing their credit earlier. Since chapter 7 entails an almost complete wiping of financial debt from a debtor's financial record as well as no court mandated financial controls, a person who goes bankrupt can begin to work on refinancing after bankruptcy and other issues as soon as is feasible. Those who claim chapter 13 must wait until their court mandated supervision is over before attempting to repair any personal credit.
Some of the basic ways to repair credit for both options is to always pay all bills on time, apply for a credit card as soon as possible, and to have a positive attitude to face all the difficulties ahead. If a legal filing was necessary because of some issue such as an ill family member or divorce, it is helpful to notate it in any applications for refinancing after bankruptcy or for any other reason. Creditors can be helpful to those who consistently commit to establishing credit after bankruptcy and do not give up when high interest rates or problematic financial questions occur. It is possible to live through a legal filing and go on to have a stable, financial future for those who are determined and dedicated.
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