Working with Lenders: How Bankruptcy Affects Your Ability to Receive Loans

Bankruptcy is designed to help you deal with an overwhelming amount of debt by eliminating some or all of it or allowing you to repay a portion of it over time. While it can protect you from creditor actions like collections, lawsuits, and even foreclosure, bankruptcy has a downside that you should also consider.

Bankruptcy Stays on Your Report for Years

A Chapter 7 bankruptcy stays on your credit report for up to 10 years after discharge, although the debts involved disappear sooner. With a Chapter 13 filing, the information remains on your record for up to seven years after discharge but the debts themselves may be visible longer, as they remain active during the repayment plan and stay on your report for up to seven years after being paid off.

Negative Impact on Your Credit Score

Depending on whether you file for Chapter 7 or 13, your credit score can fall between 160 and 220 points. Most lenders make credit decisions based on your score, so a bankruptcy on your record will make it much more difficult to qualify for credit cards, a mortgage, or auto loan.

Less Favorable Credit Terms

Even if the lender does decide to extend credit to you, the interest rate will be higher and the terms won’t be as favorable as the ones you received in the past. For example, if you apply for a mortgage, you may be asked to make a much higher down payment or agree to higher closing costs. If your financial circumstances support it, it may make more sense to reaffirm your current mortgage and continue paying on it, an arrangement that will be more sustainable when other debts are reduced or eliminated

How to Move Forward

Although the process will be difficult at first, it is important to start rebuilding your credit immediately by paying all of your bills on time and avoiding any negative financial habits that may have contributed to your debt difficulties. You should also apply for a secured, low-limit credit card and obtain a cell phone on contract, as these accounts will be reported to the credit agencies and allow you to slowly but surely strengthen your credit profile.

Bankruptcy will affect your ability to receive loans for as long as it stays on your credit report but the good news is that it will have less of an impact as time passes. If you live in Oklahoma and are considering bankruptcy or one of its alternatives as a form of debt relief, contact the Law Offices of B. David Sisson. Attorney Sisson is one of the few board-certified bankruptcy attorneys in the state and will give you legal advice and representation based on his years of experience in bankruptcy law.

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