New loans and credit cards may present less of a challenge than you’d think after bankruptcy.
But there’s a lot to think about before bankruptcy filers drag themselves down with new loans. Bankruptcy, in the right circumstances, cleans the slate for a new financial life.
The U.S. Supreme Court explained it in these words:
“It gives to the honest but unfortunate debtor … a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”
The case of Local Loan Co. v. Hunt clarifies the idea that bankruptcy gives honest debtors a fresh start.
Secured Loans After Bankruptcy
What kind of loan do you want? If you need a new vehicle, car loans are generally available after and even during bankruptcy. This is because these are secured loans. Secured loans tie possession of the vehicle to payment. If there’s no payment, the car can be repossessed.
Mortgages are also secured loans with the obvious threat of foreclosure if payments are missed. Usually there will be a mortgage company out there willing to loan money to buy a house. The issue after bankruptcy is that the interest rate will be higher than the person without bankruptcy on record.
Credit Cards After Bankruptcy
Crazy as it sounds credit card companies often send invitations to bankruptcy filers within months after discharge. They know bankruptcy filers largely ended up in bankruptcy because they liked and potentially lived on credit. They know people use credit cards so they offer new cards as they know many filers want back on the credit highway.
Credit card companies also know that a second chapter 7 can’t be filed for 8 years. So, their collection agents and attorneys can hound you with collection actions for the next 8 years. If you own real estate, they can file attachments.
Caution in Considering Credit
Never even consider a credit card without reading the application, especially the small print. Take a look at what else is available. Compare what they want to nail you with in interest rates, fees and other charges.
Car loans, credit cards and even mortgages should not be a big deal to obtain. The important thing is to get the right loan which you know you can pay regularly and early. Having filed bankruptcy your interest rate may be higher on secured loans. But be careful before jumping head first into credit cards again.
Here’s an article on the related topic of rebuilding credit after bankruptcy.
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When you file for Chapter 13, one of the largest upsides is that it aims to allow you to keep your property. Part of this perk is through the use of exemptions: portions of your property and belongings that are exempt from the bankruptcy process.
For many average bankruptcy filers that general statement is true for Chapter 7 also. As long as any equity people have in their homes is covered by the applicable homestead, the home will be saved. Also, the exemptions for cars in Massachusetts and New Hampshire generally cover most modest cars. If people have multiple vehicles or very expensive vehicles with low loans or no loans, they’ll likely have problems with a Chapter 7.