Those who are facing burdensome debts and unanticipated financial hardships that prevent them from paying those debts often consider Chapter 7 Bankruptcy. Unfortunately, there are a great many myths that are perpetrated by financial institutions and the media about the negative impact and disadvantages associated with pursuing a Chapter 7 or chapter 13 bankruptcy in Oklahoma. The unfortunate effect of these myths is that they often deter people who could receive an enormous benefit from pursuing bankruptcy relief. One of the most destructive and inaccurate myths in this regard involves the notion that bankruptcy causes permanent damage to your credit.
While it is certainly the case that bankruptcy has a short-term negative impact on one’s credit rating, most people who filed bankruptcy improve their credit rating in the long-term. The first key point to keep in mind is that people with sterling credit who can afford to pay all of their debts on a monthly basis do not seek bankruptcy protection in the first place. By the time people consider bankruptcy, they usually have many derogatory accounts that are in collections, past due, closed or written off. Many of these accounts continue to accrue derogatory comments and lower debtors’ credit rating as they struggle under whatever financial hardships that they are facing.
Once a Chapter 7 or chapter 13 bankruptcy discharge is received, prospective creditors know that you may be a safer credit risk for a variety of reasons. First, you are no longer subject to collection activity or debt enforcement procedures from the creditors whose obligations were discharged in bankruptcy. When these were outstanding obligations, the creditors might have garnished your bank accounts or levied against your bank account impairing your ability to pay other creditors. Second, you will have an excellent debt-to-income ratio. Since most of your unsecured debt will have been extinguished by bankruptcy, you should have more available disposable income. Third, new prospective creditors know that you are barred from immediately seeking bankruptcy again so they have some protection from bankruptcy that did not exist prior to you receiving your discharge.
Admittedly, your credit must be re-built after bankruptcy, but the notion that it has been permanently destroyed is patently false. Sometime after your Chapter 7 discharge, you will start to receive solicitations from companies that offer “secured credit cards.” These are linked to your bank account or require a security deposit so they do not really offer credit. However, many of the companies and financial institutions that provide these secured cards will report payments to credit bureaus so that you can re-establish positive credit activity. It is important to understand that these companies target those who have filed bankruptcy or face other credit challenges so they tend to have high fees.
After a period of re-establishing your credit with these kinds of secured cards, you will find you start receiving “real” credit card offers. These will likely have high interest rates, but as long as you are careful about not accruing additional derogatory credit, you should start to get offers with better rates so you can transfer your balances. After two year, you may even become eligible for an FHA home loan.
The key point is that many people struggling to pay minimum balances on a card one month and skipping the card entirely the following month will struggle with their ability to obtain credit more than someone who has received a Chapter 7 bankruptcy discharge. If you have additional questions about the impact of a bankruptcy on your credit or other bankruptcy questions, we invite you to speak to an Oklahoma bankruptcy attorney at EZ Oklahoma Bankruptcy.
Our Tulsa Bankruptcy Attorneys can review your individual situation so that we can determine the debt relief solution that best fits your particular needs. The EZ Oklahoma Bankruptcy Chapter 13 Lawyers offer a free consultation so that we can assess your needs and recommend a course of action. We invite you to contact us at (918) 637-1546 or fill out this form today!