Bankruptcy

The legal provision of bankruptcy, though sometimes misused, is a progressive and often merciful process. By it, a hopelessly indebted individual can make an official declaration of financial inability and be free of obligation. This may be on a temporary or permanent basis, depending on the degree of insolvency.

With new amendments in US laws, there is little or no social or corporate stigma attached to filing for bankruptcy. Filing for bankruptcy, though a matter of public record, no longer means that it becomes a matter of public knowledge. Effectively, this is an incentive for the bankrupt party to make another attempt at financial solvency. An individual can file for bankruptcy under Chapter 7(for irreversible insolvency) or Chapter 13(for temporary insolvency).

The benefits of filing for bankruptcy include restoration of bank credit via a secured credit card. This requires a certain deposit to be made, but a new line of credit can be established within two years of doing so. Meanwhile, the bankrupt person has assured freedom from harassment by previous creditors.

The US Congress amended the US bankruptcy code(ratified in 1978) in 2005, and further amendments were made on October 17, 2005, to discourage the abuse of the generous provisions available.. In fact, the passing of these amendments was preceded by a literal stampede on bankruptcy courts by people hoping to beat their enactment.

Under the revised Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, (BAPCPA), someone filing for bankruptcy is subjected to stringent tests to establish genuine insolvency and present income. Another provision is that people dwelling in any particular state, must be residents of that state for at least two years to be eligible. Bankruptcy laws do not provide a shelter against alimony and child support obligations.

2 CAN DO: Get New Credit after Bankruptcy

If there is one thing you can count on in todays competitive lending environment, it is that credit is always available, even to the recently bankrupt.

The catch?

Credit may be more expensive than before and available with lower limits. But all that is secondary only to the fact that credit does exist and you can get it.

One of the easiest credits available to the recently bankrupt is a secured credit card. As opposed to an unsecured credit card, in a secured card, you must make a deposit of a certain amount of money in exchange for a card that you can use just like a regular credit card. Your credit limit is equivalent to the cash deposit you made.

Now, the good thing about a secured credit card is that it is usually available post bankruptcy at lower rates than unsecured cards.

Whats more, the fact that these credit cards are secured are not often indicated in your credit report so creditors have no way of knowing whether your credit card is secured or not. All they will see is that you have been approved for a credit card, which ups your credit score a bit and puts you back in the game fairly quickly.

Note, however, that credit experts are not quite in agreement concerning the impact of secured credit cards on your credit rating. So if you do decide to open a secured credit card post bankruptcy, be sure to do it slow.

While your rush at rebuilding your credit is understandable, making mistakes that could significantly affect your credit score like this is not worth it.

Rebuilding your credit worthiness after bankruptcy is a matter of getting a toe-hold in the world of credit. The balance is often precarious and needs delicate treatment. Use credit cautiously and pay on time.