Recently, someone called this article to my attention, which extolls the advantages of bankruptcy.  It listed several advantages to doing it and seemed to gloss over the detriments.  It’s written by Jane Bryant Quinn, who is a very respected writer by many journalists (including myself)  about personal finance.

http://www.newsweek.com/id/177749?GT1=43002

To get my two cents in, I have to say that I almost never recommend bankruptcy to people.  They can do less damage to themselves and their finances sometimes by simply not paying burdensome debts.  Sound immoral?  What exactly do you think you’re doing when you file bankruptcy?  You’re getting rid of all those debts.  Are your creditors going to hound you?  Yep.  But I won’t be forever.  Can you can sued?  Yep.  But you can beat this as well.  And as your ace card, you can still file bankruptcy.

I filed a bankruptcy myself in 1995, and it was 10 years of pain.  You can’t expect to get off scott-free for being able to discharge your debts, so I’m not complaining, but I really wish I had known more before making my decision.  It really hindered me unnecessarily financially for 10 years.  I wasn’t looking for a job during these 10 years, so that didn’t factor in, but it definitely will now with the tightening job market.  Here is a time line of how the bankruptcy affected me year by year.

• First 6 months to a year: No credit cards, loans, insurance rate skyrocketed.
• 1 year to 2 years: No credit cards except secured cards at outrageous interest, no home refinance possible, insurance rates still high.
• 2 years to 4 years: Was able to get a decent car loan through a credit union, unsecured card through a credit union, was able to refinance home with mega paperwork explaining the BK after 3 years. Insurance still high because of BK
• 4 years to 7 years: Credit score below 680, forget about getting an unsecured credit card with any major lender. No department store cards possible. No way to get unsecured card with any major bank, so no frequent flier miles, low initroductory rates, etc. Insurance higher than without a BK
• 7 years to 10 years – All negatives except the BK fell off. Credit score was 680. Could refinance house at “A” rates without much effort. No way to get unsecured card with any major bank, so no frequent flier miles, low initroductory rates, etc. Insurance rates still slightly higher unless I went with a company who did not pull credit reports.
• 10 years: BK off report. Score jumped up to 780. Could get any kind of credit I wanted.

You have to remember that times were different in 1995-2005 as far as lending and insurance guidelines, but I haven’t heard much that tells me your experience will be any different then mine if you file a Chapter 7.   That, if you can qualify.  Most people can’t, after the bankruptcy reform bill of 2005.

Based on reader feedback, this is the current market

CREDIT CARDS
Unsecured with a Bankruptcy (in General):
You will not be able to get an unsecured credit card with a bankruptcy (even with a good credit score) showing on your credit report from the following companies: Chase, Citibank, and American Express and Wells Fargo.

Unsecured 3-4 years out of Bankruptcy (and a credit score in the high 600’s):
Orchard Bank, Discover and Capital One all have numerous programs for some who has had a bankruptcy, and has rebuilt their credit since.  You can apply for and get apartment store credit cards (like Lowe’s etc).  WaMu used to be pretty forgiving on handing out credit cards, but no updates since the merger.

The best bet for anyone with a score under 700 is to check out your local credit union.  They usually are forgiving of a few dings and will give you a secured card with a reasonable rate.

Just out of a Bankruptcy, Secured cards:

1. Bank of America has a good secured card program.
2. Stay away from Capital One, First Premier, Orchard Bank (HSBC)
3. There are lots of programs to which you can apply.  Good sites are bankrate.com and cardratings.com.
4. Applying for and getting credit after a bankruptcy is the ticket to raising your credit score and opening the door to more credit.

MORTGAGES

1. You can usually get an FHA loan, even after a bankruptcy.  The credit guidelines are usually more forgiving then conventional mortgages.
   1. Chapter 7 must be discharged 2 years with re-established credit and no late payments
   2. Minimum of 18 months with extenuating circumstances-requires explanation and proof.
   3. Chapter 13 ok with a minimum of 12 months in BK and 0×30 pmt history to trustee.
2. Credit Unions may be able to give you equity lines, though not a “Primary” or “First” mortgage (they are not allowed to compete in this area with other lenders).
3. Fannie and Freddie guidelines are 4 years  from the discharge of Chapter 7 Bankruptcy and 2 years 4 years  from the discharge of Chapter 13.

Related posts:

1. A Bankruptcy Checklist In today’s economic climate, more and more people are turning...
2. Seven Things You May Not Know About Bankruptcy Though I rarely recommend bankruptcy (usually because the person does...
3. Credit Union Industry Worried about New “Cramdown” Legislation One of the economic turn around proposals being kicked around...
4. Bankruptcy Filings Surge Amid Rising Unemployment It is more bad news for the United States economy,...
5. How Will General Motor’s Bankruptcy Affect the Consumer? General Motors, one of the largest U.S. automobile manufacturers, has...