That’s a great question, but the better question is, how is your credit rating right now? As a general rule, if you currently have excellent credit but just too much debt, your credit score will probably drop to 600 or so after the bankruptcy. On the other hand, if you are wallowing with a credit score under 600 or so, it will probably go up to about 600. This isn’t to say that everybody’s credit score is going to be 600 after a bankruptcy. And I really try to implore people not to get too hung up on the so-called credit score.
Most of the people that I talk to, have been wallowing in a bad credit score for years, and sometimes the bankruptcy is the best way to hit the “reset” button and get a fresh start. Because your credit history after the bankruptcy is going to end up becoming a lot more important than your credit history prior to the bankruptcy, particularly the longer the bankruptcy is behind you. There may be some things you can do to clean up your credit, for instance if there are judgments, there is a procedure under state law where you can get judgments discharged, which doesn’t take them off of your credit score, but it will basically have the same effect as if they were paid off.
After a bankruptcy, your pre-bankruptcy creditors will either not be on your credit report, or they will show a zero balance, or they will say “included in bankruptcy.” If they are still showing as a valid debt, then you have a credit repair issue, which you can follow-up by disputing that with the creditor, then with the three major credit bureaus.
While a chapter 7 bankruptcy stays on your record for 10 years, it will become less and less of a factor on your credit the further it is behind you. As a general rule, you should be able to qualify for another mortgage in three years. See my prior blog post about that including time frames for different types of mortgages. Of course, you might be able to find something sooner than that on a contract for deed, and then have a balloon payment in the future. Of course, the flip side of the equation, is that you will need to have sufficient income to afford a house.
As far as finding a rental, that should not be too much of an issue after a bankruptcy. As a landlord myself, I actually prefer prospective tenants who have filed bankruptcy as opposed to having a boatload of debt, because it tells me two things – first, I will know that they don’t have a bunch of other creditors competing for their dollar on the first of each month. And second, it tells me they cannot file bankruptcy for another eight years. So in a lot of ways, you are a better risk after you file bankruptcy then you are beforehand.
Car loans can be obtained after a bankruptcy, although there will typically be a steep interest rate, perhaps a high down payment, outrageous financing fees, and even a “dongle” that will turn the vehicle off if you don’t make the payments. Getting a cosigner is usually the best way around that; a higher down payment can also help you negotiate a better interest rate. Sometimes shopping for financing is even more difficult than shopping for the right car. Again, the further the bankruptcy is behind you, the less of a factor it will be, to the point where after a few years, it will not be an issue whatsoever, presuming that you have begun on the road of rebuilding your credit after the bankruptcy.
And believe it or not, you will get preapproved credit cards again after a bankruptcy, because the creditors know that you cannot file for another eight years. Some people recommend having credit cards after a bankruptcy as a means of rebuilding a person’s credit score.