Filing for bankruptcy significantly impacts your credit score. After filing, it takes some time to recover and rebuild credit but it is still possible to get a credit card again. Eligibility will be limited to specific types of credit cards that are for people with lower credit scores (or no credit). This is a great way to start rebuilding your credit which is important after declaring bankruptcy. 

How Bankruptcy Affects Credit 

Declaring bankruptcy is the most impactful action that can appear on a credit report. It can impact your credit score differently depending on the type of bankruptcy you filed. There are two types of personal bankruptcies: 

  • Chapter 7: this type of bankruptcy eliminates most forms of debt. This includes credit card debts, car loans, medical bills, personal loans etc. Chapter 7 bankruptcy involves taking and using any assets towards paying off debt. This will alleviate the debt owed to creditors but also take anything you own of value. Chapter 7 bankruptcy severely damages credit score, remaining on your credit report for up to 10 years. 
  • Chapter 13: less damaging (but still impactful) to credit score is a Chapter 13 filing. This type of bankruptcy involves restructuring debt with creditors and establishing a plan to repay part of the debt within a specific time from (usually 3 to 5 years). This alleviates some debt and allows people to keep their assets. Chapter 13 bankruptcy remains on one’s credit report for up to 7 years. 

Filing for bankruptcy means that creditors will only receive a fraction of the money owed to them. With a Chapter 7 filing, creditors may receive no payments on debt. This may cause lenders to hesitate or decline issuing new credit because a  bankruptcy filing flags an applicant as a risky borrower. Lenders may also charge higher interest rates and additional fees for people with a bankruptcy filing on their credit report. 

Fortunately, the impact of a bankruptcy filing on one’s credit report will lessen over time. Additionally, rebuilding credit and reestablishing effective credit behaviors  can be incredibly helpful. 

Getting a Credit Card After Bankruptcy

Getting a credit card after declaring bankruptcy is a great way to rebuild your credit. Before applying, your bankruptcy proceedings have to be completed and discharged. For Chapter 7 bankruptcy, this can take 4-6 months after the initial filing. For Chapter 13, this can take 3-5 years which prevents you from applying for a credit card until last payments on restructured debt have been made. 

With a bankruptcy filing on your credit report and a lower credit score, the best way to get a credit card is to apply for one that is designed for people rebuilding their credit. A secured credit card is likely the best option. This type of credit card requires you to put down a cash deposit that is usually equal to the credit limit. This allows the credit issuer to take the deposit to cover the debt if you fail to pay the balance owed. But in other ways, a secured card works like a conventional credit card. You are able to make purchases up to the credit limit and make payments over time while being charged interest on the balance that carries over to the following month. There are different types of secured cards that have varying interest rates. 

In addition to secured cards, there are unsecured credit cards which do not involve putting down a cash deposit. But these cards tend to have higher interest rates and additional fees. 

Tips for Building Credit 

Declaring bankruptcy is an impactful process but it does allow you to get a fresh start on your finances, allowing you to work on credit management. By getting a new credit card, you can rebuild your credit so that you can later qualify for better credit opportunities. A few tips to practice to successfully rebuild your credit include: 

  • Make payments on time and in full every month
  • Keep credit card purchases at a level that you can quickly pay off 
  • Set up alerts to avoid late payment 
  • Sign up for programs that outline credit-building actions
  • You can gradually rebuild your credit over time and quality for more credit cards that offer greater rewards and perks!

If you have questions about declaring bankruptcy, we’re here to help. Contact us today for a consultation.