As a bankruptcy lawyer, one of the more common questions I encounter in my initial consultations with clients is: How long will a Chapter 7 bankruptcy affect my credit?
This question often puzzles me because so many prospective bankruptcy clients are financially and emotionally exhausted from the debt treadmill and are sick and tired of not being able to get out of debt.
They come to me to seek advice on how to address their personal financial distress or disasters, but this question leads me to think otherwise. It’s the classic pain vs. pleasure dilemma.
Their very presence in my office is a testament that they have reached the end of their financial, emotional, family and spiritual resources. They need help and guidance – yesterday.
Some clients I help through basic financial counseling: increasing income, selling off assets and decreasing spending, and others, bankruptcy is the only option.
So acquiring new credit cards following financial disaster or bankruptcy and therefore getting back into debt is both puzzling and troubling.
I have now taken the approach to dig deeper before I answer that question.
Instead of providing my stock answer that a Chapter 7 bankruptcy will remain on your credit report for 10 years and that the effect upon your ability to get credit in the future is really a function of having existing credit, making current payments (post bankruptcy) and your ability to make timely payments with future creditors.
Now, I ask why do you want to go back into debt?
Some of the answers are obvious: (1) want to buy a house in the future or (2) need to purchase a vehicle in the future: therefore, I need credit to get credit. Buying a house or car in the future are legitimate concerns for anyone contemplating bankruptcy, but going into debt is not always the answer to rebuilding credit or being able to buy a house or car.
Although the post bankruptcy use of credit cards can be useful in rebuilding credit, most people should shy away or completely swear off the use of credit cards. Here are three major reasons that you should not acquire credit cards following bankruptcy.
1. Stay Out of Debt . . . . Permanently
So many of the people I speak with are sick in tired of never being able to get ahead financially. They feel they are on a never ending tread mill of minimum monthly payments and living paycheck to paycheck. I counsel my clients to think long term when approaching bankruptcy. If after I’ve met with a client and bankruptcy appears to be an option for them, they should ask themselves whether or not they want to continue this lifestyle or adopt a radical change – living within their means, savings for emergencies, maxing out retirement savings, investing for the future and simply living life without the stress and anxiety that a debt diet brings. There is no reason to go back to the old ways – especially if bankruptcy has wiped away tens of thousands of dollars worth of credit card debt.
2. The Gateway Drug to living beyond your means
This seems obvious, but given the chance or more importantly, if an emergency arises do you use the credit card to pay for that “emergency.” Statistics indicate that most people will opt for using the card and insisting that they then plan to pay the card off (in full) next month (or soon as possible), but I’ve seen both in my Merced and Fresno Bankruptcy offices this just is not the case.
Take for example, my clients who will proudly tell me that 4 or 5 years ago they paid all their credit cards off with a home equity line of credit (ball and chain), but now years later they own both the line of credit (secured by their house) and new credit card debt.
3. Back to the Treadmill: A Diet of Credit Lead Bloated Credit Balances
This is similar to Reason #1, but with a difference (or maybe not). We can all imagine a never ending treadmill that we can never get off – the debt treadmill, so why get back on? More importantly, why tempt yourselves with a new card: “just for emergencies.” A better strategy is to establish an emergency bank account with real money to handle those emergencies.
My advice is to stay away from credit cards for filing for Chapter 7 bankruptcy. In Chapter 13 (until you complete the plan) you are prohibited for incurring new debt.
Disclaimer
Fresno-Bankruptcy-Lawfirm.com is owned by the Law Offices of Jeffery D. Rowe. We are a debt relief agency. We help people file for bankruptcy relief under the Federal Bankruptcy Code (Title 11 of the United States Code). If you would like to discuss your situation in further detail, please call our offices at: (559) 228-1500 to schedule a consultation.
