Bankruptcy
With certain exceptions, people filing bankruptcy get to keep ALL their property, while wiping out dischargeable debts and liabilities. Illinois provides a set of exemptions to allow people to keep their assets and wipe out their debts, such as credit card debt and unsecured loans.
The bankruptcy discharge provides a clean break from most pre-petition debt. While it best to avoid credit card balances after their bankruptcy is over, it is important to re-establish credit through the responsible use of borrowing.
If you have a secured debt, such as a car loan or a home loan, making payments and keeping current will help you build a positive credit record. In addition, you can obtain a secured credit card, which is secured by either your bank account or a separate escrow account into which you deposit a set amount of money. If you keep making timely payments, these accounts will help you establish positive credit history.
It may surprise you to learn that after bankruptcy, you may be inundated with credit card offers. This is because the credit card companies know that you no longer have any debt to service, and you are ineligible for several years from filing for bankruptcy again. In some ways, you have become a very good credit risk for them.
There is nothing wrong with applying for one or two credit cards or using them for small purchases. The pitfall to avoid is revolving a balance. As long as you pay off your cards in full each month, you will be establishing responsible use of credit, and can quickly be in a better position than you were before you filed for bankruptcy.
Many people avoid filing for bankruptcy protection because they do not want to ruin their credit, and this idea is usually misplaced. Bankruptcy can be a big hit to your credit. However, most people who are heavily in debt or are behind on their bills already have bad credit so filing for bankruptcy will not necessarily make it worse.
Information about your bankruptcy will be on your credit report for up to ten years. However, this does not mean you will have ten years of bad credit. The bankruptcy filing will be just one factor affecting your creditworthiness.
If you plan to purchase a home in the future, you should be aware that FHA guidelines state that you are eligible if your bankruptcy discharge occurred at least two years ago. For Chapter 13 filers, you can obtain an FHA loan if you have been current on your trustee payments for at least one year.
In many cases, bankruptcy is the best step a person can take to rebuild their credit. Bankruptcy provides a clean start from most debt, which allows you to begin establishing positive credit. If you do not address your debt, and continue to miss payments, your credit cannot begin to heal, and it may be much longer before you are considered creditworthy.
There is a popular misconception that employers use credit checks to avoid hiring people who have filed for bankruptcy. In fact, federal law prohibits hiring discrimination based on filing for bankruptcy protection. It is illegal to deny employment based on bankruptcy, or to deny professional licensing. Part of this misconception is based on the widespread use of credit checks in hiring. It is true that many employers conduct credit checks. However, their goal is to look for debts based on fraud, embezzlement, or other misfeasance, and to review your address history to see if you tend to move locations frequently.