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:
- Bank of America has a good secured card program.
- Stay away from Capital One, First Premier, Orchard Bank (HSBC)
- There are lots of programs to which you can apply. Good sites are bankrate.com and cardratings.com.
- Applying for and getting credit after a bankruptcy is the ticket to raising your credit score and opening the door to more credit.
- You can usually get an FHA loan, even after a bankruptcy. The credit guidelines are usually more forgiving then conventional mortgages.
- Chapter 7 must be discharged 2 years with re-established credit and no late payments
- Minimum of 18 months with extenuating circumstances-requires explanation and proof.
- Chapter 13 ok with a minimum of 12 months in BK and 0×30 pmt history to trustee.
- 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).
- 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.
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Great post!
Sounds like the esteemed JBQ got some love from the banking industry: who other than the lenders think Chap 13 is a good idea?
I am going to pass this on to my clients. I see more and more headed to BK, but I want them to go with a clear understanding of the decision
I am looking for information on failed BK CH 13. I filed but was not happy with the way things were going, 6 months into the process I cancelled the effort. the Court dismissed it in June 2008. So I have it reported on 2 credit reports as dismissed. How does this hurt me and can I have it deleted since I never when through with it?
My wife & I got Chapter 7 BK debts discharged back in November. I was ready to get a secured CC account to start re-building credit. About 3 or 4 weeks after the discharge we received an unsecured CC offer from WaMu. The offering stated that we were pre-approved & would receive an account with a limit of between $200 to $1,500… I assumed we would get a $200 lomot CC… 10 days later the card showed up…. $5,000 LIMIT! Then Cap One started pelting us with an offer for another pre-approved card…. we took it, too……bingo!….another $2,000! My wife’s car lease is ending on Feb 10th… Cap One sent us a pre-approved, guaranteed “Blank Check” (their program) for up to $17,500.00 with an interest rate of 7.8% and up to 60 months to pay it off! I found a killer deal on a 2005 Jeep Grand Cherokee with only 26,000 miles on it for $14,000. Life is fine, and the burden that was lifted by Bankruptcy is but a memory (not of course without a major, life-lesson…)
Now we get back to work and doing it right, this time.
Thank You USA…the world’s greatest country!
D & S
We filed bankruptcy in 11/08. Prior to this are credit scores for 20 years were 700 plus with no late payments. My wife lost her job and it sent us into a tail spin. Since then we received a credit card in 2/09 for 1000.00 from capitol one for both of us, separate accounts. During the bankruptcy I purchased a vehicle after my lease eneded and got a fair rate of 14 percent (2007 jeep) considering the situation. Now 6 months later my credit score is 648 and rising. You can recover from this and learn from your mistatkes. Make sure you have 3 to 6 months cash reserves and limit credit cards to nil to none with limits not over 2000.00. Pay off all debt as it comes and you will live debt free.
What the heck? I filed BK (had to do Ch. 13 per lawyer advice). I paid 800 bucks per month for 5 years. Needed new car, had to get crap cars and try to save, paid cash. Took taxis for too many days. I paid off BK in 9/2008. Had to wait 6 months for DC papers from court. Meantime, I had to get a reliable car and had to pay 21% interest on 5000 bucks for car with a little device that requires a code to be entered when I pay or I can’t drive the car. Now, I’m trying to refi my house because I’m paying 7.75% interest. Told I can’t because it takes 2 years after DC for Ch. 13. Totally unfair–if I’d done Ch. 7 I’d be through the 4 required years. I filed Ch. 13 6 years ago and other people are upside down with mortgage and getting 4% interest and I paid like crazy and can’t get even 5% interest! Have only 90,000 left on mortgage, house worth over 150,000–how did you people get so much credit? I need insulation done on house and siding–paying tons in electric and gas and can’t qualify for HEAP or other grants because I make too much!!! I’m bailing out banks and getting screwed at the same time. HELP!
Orchard Bank has helped a lot of people raise their credit scores following bad credit. A secured card is only $200.00.
This article is so full of misinformation it’s pitiful.
What is wrong?
The information in here is not really correct.
I filed Chapter 7 Bankruptcy in January 2010. It was discharged in May 2010. In February 2010, I got a great job in a competitive market. In April 2010 I signed a lease on a new apartment (prior to my discharge). In June, 1 month after my discharge I got a secured Credit Card through Capital One. I put down $200, which is my credit limit. My interest rate isn’t bad either. After a few months of using it and paying it on time they will make it unsecured and up my limit. They also report to all 3 credit bureaus. In July 2010, 2 months after my discharge I purchased a car. I was able to get financing. While my rate is not the greatest, it is actually lower than it was before my bankruptcy (I purchased a 2009 car). I am not saying that everything is great and that it won’t be hard, but for me it was the best decision. I do not regret it. The amount of stress it relieved made it so worth it to me. All I can say is do your research. That is how I found my car loan and my credit card loan.
I also had a great attorney. Hope this helps someone!
Filed chapter7 in Sept, haven’t paid car not since August can’t afford car note one reason why I filed chapter 7, what will happen next with the car? Will they come and get it or do I just turn it in?
I filed may of2009 for chapter 7 , still not discharged ,one of the creditors worked for the state ,(was fired ) the creditors and the trustee seemed to be buddy buddy ,they all knew each other , one of the creditors called me during the bk and said he will get me after the bk , can they ?
If you filed a Chapter 7, contact Lexington Law. That is all I will say. The finance manager at my Infiniti dealer recommended them after I did a Chapter 7. I have been amazed at what they’ve done to improve my reports and scores in just 10 months. Amazing.
Everyone listen to me please, I filed bankruptcy in Jan 2010, it’s now March 2011, my case was discharged back in August 2010, so really it’s been like 7 or 8 months, within those eight months I contacted chase they gave me a 1k credit card zero percent interest, I explained to the underwriter the situation that only reason i filed was due to being unemployed. I then contacted USAA they gave me a Rewards Mastercard for 4k, and an American Express card for 1k and another mastercard for 450 dollars. My credit scores are 701 680 and 668, I was just approved by a lender to purchase a home at 4.75% and they refinanced my car at 4.8%. Now how did I do this? easy contact the credit departments and speak with an actual analyst who makes the decisions on whether you get approved or not. it’s all about sweet talking and seriously if you bother them enough they will finally give in. So that bs about it taking years to rebuild totally not true. My credit scores are the highest they have ever been with one being in the 700′s totally awesome, making all payments on time and my lenders are happy and after six months i’m eligible for limit increases. Oh and I also got 2k card with JC Penney, and 500 with walmart, and 1k with Macy’s and 3k with Nordstroms, 2.5k with Target and 4.5k with Meijers so you can totally do this!!! Happy hunting to ya’ll and the key is persistency if you are persistently calling these companies they will probably get sick of you calling like they did me and give you a card. I just kept speaking with one analyst after another till you find one that is sympathetic.
no more bk for me! scores that high, now I just have to wait the 7 years more to have it fall off in 2016 
I just wanted to put my two cents in here – I filed BK in 11/05 and was discharged in 3/06. Over five years later, with a 750+ FICO across all three agencies, I was declined for a Delta SkyMiles AmEx. When I filed BK, I was making $38,000 a year and was drowning in debt; 5.5 years later and I’m making $103,000 a year and have an overall debt-to-income ratio of 18% (including a mortgage payment and car payment, both rather modest). I learned from my mistake and worked very hard not only on my career, but making wise choices financially and I’m still not able to meet the AmEx requirements.
Long story short- if you file BK, be prepared that things won’t be all that bad, but you will constantly be reminded that you are not in the top tier of creditworthiness, even when your financial situation alludes otherwise. Good luck.
Well not true. After a year I got hsbc credit card for $2750 unsecured. I got capital one for $1500. I got Apple Barclay for $3000 and many more!