Will I be able to get a loan or credit card again if I file bankruptcy?

Posted on Dec 31, 2012 By Attorney Mary Conner Pool

The answer to this question really depends on you. One of the biggest fears for most individuals who have filed bankruptcy is that they will never be able to buy a house or car in the future. After someone obtains a discharge from bankruptcy, they will be able to reestablish their credit and obtain new loans if they:

  1. have the income to support repaying the debt, and
  2. make their payments on time in the future.

The first factor on whether you will be able to obtain new credit after bankruptcy depends upon your income. You must show that you have the income to support repaying the debt back, otherwise, the creditor will not be willing to give you credit. For example, you would not be able to qualify for a mortgage with a payment of $1,000 if you only making $800 a month because your income shows that you are $200 short in making that payment and that is assuming you have no other bills. This has nothing to do with whether you had a previous bankruptcy filing but instead it depends upon whether your income will support the debt.

The second factor on whether you will be able to obtain new credit after bankruptcy depends upon how you repay your debts back. You must make your payments on time on any future debts you obtain to help reestablish your credit. By making your payments on time, you will be able to improve your credit score which will enable you to obtain better credit terms after time (i.e., lower interest rates, longer terms). This factor is the most important factor in helping your credit score because 35% of your credit score is determined from your payment history.

The two types of debts a consumer may obtain are installment and revolving debts. Installment debts are loans where you borrow a specific amount and pay it back in installment payments over a specific period of time (i.e., purchasing a car or furniture). A common revolving debt for consumers are credit cards where you have a specific credit limit that you can borrow up to and then pay back down, thus enabling you to borrow back up to the limit again.

Most individuals receive various credit card offers after they obtain their bankruptcy discharge. These offers are not the best way to reestablish your credit if you are unable to be disciplined with the card and able to pay the balance off or the amount due each month. If you can be disciplined though, you should know that most credit card companies will report your payment history to the credit reporting agencies and if you are paying on time or paying your balance off each month, your credit score will improve.

An installment loan is likely the better choice of debt to obtain after filing bankruptcy since you have a specific payment amount that you would pay back each month enabling you to live within your monthly budget and know what to expect every month. Once again, your credit score would improve if you are paying the monthly installment on time each and every month.

Whatever method you chose to reestablish your credit, you must always make sure you can afford the debt and that you have the ability to repay the debt back on time each month. If you do this, then you will be able to build your credit score after bankruptcy making it easier for you to be approved to purchase a car or home in the future.