The Impact of a Bankruptcy Filing on Your Credit Score

You have worked really hard to build and maintain a solid credit record, but have faced significant financial challenges in the last year or so. Maybe you had an illness or injury that kept you from working. Maybe you went through a divorce, or lost your job. The stress of dealing with the continual calls and letters has led you to consider bankruptcy as a way to get a fresh start, but you worry about the potential effect it will have on your credit record. Will your opportunity to obtain credit be ruined forever?

The simple answer is NO! While your bankruptcy case is open, you cannot obtain credit without approval of the bankruptcy court. Most lenders do not lend to people with an active bankruptcy case.

However, the good news is that potential lenders are more interested in what you have done lately than the fact that you have ever filed for bankruptcy protection. Our clients are consistently shocked that they begin receiving credit card offers in the mail as soon as six weeks after their bankruptcy cases are closed. if you consistently make all your payments in a timely manner, you will start to rebuild your credit. Filing for bankruptcy can actually improve your ability to get a loan in the future. By wiping out the debts that you currently owe, you will improve your debt to income ratio, which is an important factor in determining credit worthiness.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Unsecured Debts and Personal Loans

The most common form of an unsecured consumer loan is the credit card. The ability to get a credit card is going to be determined by your credit score. The lower your credit score the more difficult it will be to get a card. People with low credit scores can get credit cards but they typically have high interest rates and low credit limits (the amount you can charge on the card). Other kinds of unsecured loans are offered by finance companies and pay day loan companies. These lenders charge much higher rates of interest. Because the interest rates on these kind of loans they are the most expensive kind of legal loans. In many states the maximum legal amount of interest that can be charged for credit cards and other personal loans is 30% interest per year. However, payday loan companies are allowed to charge more than 400% interest per year!

Payday lenders will make loans based more upon your current income than your credit score. However, credit card companies and loan consolidation companies will make their decision about lending money based more on your credit score. Paying loans on time is the most important of all the factors in determining your credit score.

Knowing your credit score is important and checking your credit score from time to time for errors is very important. Almost every decision by a lender to make a loan/approve a credit card application is e based upon your credit score. Errors are made on credit reports that make your score lower than it should be, so you need to make sure the information is correct.

Tip #1 Fix errors on your credit report. You can get a free copy of your credit report once a year from each of the three credit reporting agencies. If you find an error you have rights under the Fair Credit Reporting Act. Write a letter to the credit agency telling them about the error and ask them to investigate your complaint. They must do this within 30 days. If the party reporting the wrong information does not verify the accuracy of the report to the credit agency they must remove the item from your credit report.

Tip#2 Rebuild your credit score. Start small. If you have bad credit, follow a plan to rebuild your credit score. Get a credit card even if it has a high interest rate and a low borrowing limit. A department store card might be a good place to consider. Charge something and then pay the balance off in full when the statement arrives. Repeat this over and over. Eventually the creditor will see your responsible use of the card and increase the amount you can charge on the card and lower your interest rate. Other companies will begin to send you credit card applications. If your credit score is poor and nobody will issue an unsecured credit card, you can work to rebuild your credit card with a secured credit card.

Tip #3 Consider a bankruptcy filing. If you are overwhelmed with debts, a bankruptcy filing might be the only way that you will address your current debts. A bankruptcy is the most negative type of information that can go on a credit report. However you can rebuild your credit after a bankruptcy and having shed your debts, you will be able to borrow again in the future. Even if you are being crushed by debt now, you can go on to finance a car or even buy a house within as quickly as two years after your bankruptcy is concluded.

John Hargrave was recently quoted in an article about personal loans. That article can be found at