Can you Work on Credit While in Bankruptcy?
Yes, you can rebuild your credit during the bankruptcy process. Whether you have filed Chapter 7 or Chapter 13 doesn’t matter. There are ways to start the rebuilding process. It all depends on you.
Type of Bankruptcy: Assessing the Starting Point
Everyone starts in a different place either, before, during, or after bankruptcy. For this reason, knowing when you can start applying for a credit card can jump-start the process of planning. The sections below discuss what someone under their respective chapter of bankruptcy can do and what is generally recommended. Chapter 7 Bankruptcy debtors can re-establish credit within 90 days after filling and the day of discharge.
- Credit is available to those who know where to find it. Your best bet during the Chapter 7 process may be to start looking for a secured credit card.
- A secured credit card is a bit different from an unsecured credit card. A secured credit card requires you to put down a deposit.
- For Example: let’s say the creditor requires a $500 deposit to get started. Usually, they will give you a credit line equal to the amount of the deposit; this may sound peculiar to you, but from a creditor standpoint it makes sense. The creditor will be protected from losses because you cannot default on the credit line. If you do default on the credit line, they are then protected by the amount of money in the deposit. For more information visit our blog, What’s Better Secured or Unsecured.
- Creditors want to extend credit to someone after filing for Chapter 7, simple enough. Once you file for Chapter 7 bankruptcy, the new line of credit cannot be included in the bankruptcy filing. Plus, the creditor isn’t really a creditor at all. The creditor is holding a deposit at the same time it is extending credit to you. So, the creditor is in an equity position.
Make the Smart Financial Choice
All in all, opening lines of credit while your bankruptcy case is pending is a great way to start planning towards the future. However, it is imperative you make sure that this is the best move for you to make.
If you decide to wait until after you receive your bankruptcy discharge, things will be much easier, so there is no rush. More and more creditors are learning that people coming out of bankruptcy need access to capital, and these creditors are filling the void quickly.
As always, do your homework and get the best deal on the best card for you. For more information about finding the best card click on the link for our blog on, What to Look for in A Credit Card: Research Twice, Inquire Once.