Bankruptcy can help someone stop collection activity and discharge debts that they cannot hope to repay, but people will often go to extreme lengths to avoid filing for bankruptcy. One of the most intimidating aspects of filing for personal bankruptcy is how it will typically result in the immediate loss of revolving lines of credit.
Lenders typically find out the same day that you file for bankruptcy, as the courts publish notice about your automatic stay and the likely discharge of your debts. Your credit card companies will probably freeze or close your accounts as soon as they learn about your filing. Obviously, they don’t want you to continue using your line of credit if you aren’t going to make payments.
Even if you only wanted to discharge a few of your accounts, the chances are very good that all of your lines of credit will freeze the day that you file for bankruptcy. How long will you have to wait after bankruptcy to begin using personal credit again?
Credit card offers start coming quickly
Many people who file for bankruptcy will start receiving offers for credit cards within a few weeks of their discharge. Lenders know about federal restrictions on repeat bankruptcy filings, which means they know you will have to make several years of payments or your personal property at risk.
Although the initial offers may require security deposits or have unfavorable terms, like very high interest rates, they are an important step in the process of rebuilding your credit after a bankruptcy.
Better terms and bigger accounts will take a year or two
Every month that you make a payment on a secured credit card after your discharge, you add a little bit more to your positive credit history. Additionally, each month that passes reduces the impact that your bankruptcy will have on your overall credit score.
Many people find that they can qualify for larger financing opportunities, like mortgages and vehicle loans, roughly two years after their discharge. As more time passes, your credit score will get closer to where it was before your bankruptcy filing. Eventually, either seven or 10 years after your filing, depending on the type of bankruptcy you pursue, your discharge will completely come off of your credit report, at which point obtaining new credit opportunities will be much simpler.
Understanding when credit opportunities will be available to you following your bankruptcy filing can help you overcome your aversion to bankruptcy.