If you are in a position where it has become necessary to file for bankruptcy, it is important to know how this will impact your life. While there will certainly be some very positive changes from the restructuring or elimination of debt, there is also the potential for some challenges. Specifically, qualifying for loans can be much more difficult after a bankruptcy. Understanding specifically how the bankruptcy will cause these challenges can help you to prepare for them, and take steps to put yourself in as strong a financial position as possible.
Impact on Your Credit Score
After a bankruptcy has been finalized, your credit score is going to drop quite significantly. In fact, a bankruptcy is one of the most impactful events on your credit score. Since most lenders use credit scores as a primary tool for determining who they will lend to, you can expect it will be much more difficult to qualify for a loan.
Your credit score will drop rapidly immediately after the bankruptcy, but it is possible to get it to start going back up within a few months. While this will be a slow process, it is worth the effort so you can be in a strong financial position within a few years after this difficult event.
Creditors See Increased Risk
A lender will see a bankruptcy as a sign that you have not made good financial decisions in the past. Even if your bankruptcy was not due to poor decisions on your part, lenders are going to focus on the increased risk.
Type of Bankruptcy
The type of bankruptcy you go through will have an impact on how difficult it will be to get a loan in the future. If you have your debt entirely discharged, for example, the lenders are going to be more reluctant to give you money again. If your bankruptcy was focused on restructuring the debt, however, they may be more willing to lend, though you can still expect to pay high interest rates for the first several years after any type of bankruptcy.
Not All Loans are Impacted
Not all loans are going to be impacted in the same way. Unsecured loans, for example, are going to be the hardest to qualify for after a bankruptcy because the lender will have no way to recover their money should you stop paying it. Secured loans, such as auto loans and mortgages, will be difficult to qualify for initially, but over time will get easier due to the reduced overall risk for the lender. Some loans don’t even consider a bankruptcy in the past because they are not subject to discharge in a bankruptcy. Specifically, federal student loans can be granted even right after someone has gone through bankruptcy.
Make Sure Your Bankruptcy is Handled Properly
When planning for a bankruptcy, it is critical to ensure it is handled properly. A good attorney will not only help you through the bankruptcy process itself, but do it in a way that will help you position yourself strongly for the future. Please contact the Law Office of Ray Garcia to discuss your situation and see how we can help.
Law Office of Ray Garcia, P.A.
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