A Chapter 7 bankruptcy requires bankruptcy filers to liquidate assets, and it's a relatively short process. Once you've sold the assets you're required to sell, any debts that couldn't be repaid will be discharged. This type of bankruptcy generally takes three to six months to discharge after the bankruptcy filing.
A Chapter 13 bankruptcy discharge takes much longer because it requires the debtor to follow a three- to five-year repayment plan. You can only apply for a credit card during a Chapter 13 repayment plan if you have the approval of the trustee. Even if you do, the credit card company may deny your application since you're still in the bankruptcy process.
Choosing a new credit card after bankruptcy is an important decision to get right. The goal is to find a quality card from a reputable card issuer that you can use to build credit. Here are a few tips you can follow to make this easier.
You're already aware your credit score took a hit, but you should still know where it stands currently. This will play a part in the credit cards you qualify for. If you're looking for a free place to check your credit, Experian and Discover both offer tools that provide your FICO Score (the most widely used type of credit score by lenders).
Also pull your credit report from each credit bureau: Equifax, Experian, and TransUnion. Review them for any errors on your credit history that could be affecting your credit score. Your credit report will also tell you exactly when your bankruptcy was reported.
Many credit card issuers have an online prequalification tool. After you fill out a form with some basic information, this tool lets you know if you're prequalified for any of that issuer's credit cards. That's not a sure thing, but it means you have solid odds of getting approved for a credit card.
See what credit cards fitting your situation are available from major banks, your local credit union, and any other credit card issuers you find. After bankruptcy, credit cards for bad credit are a good place to start. These are intended for consumers with lower credit scores. Card issuers often have a section with cards designed for building credit and rebuilding credit on their websites.
Another option for poor credit is secured credit cards. This type of card requires a security deposit up front, so card issuers are more lenient on the applicants they approve because they won't need to worry about unsecured debt. With a typical secured card, the minimum security deposit is $200, but there are a few that have lower minimums.
Credit card companies all have their own restrictions on applicants with bankruptcies, and you can often find this information in the terms and conditions for their cards. If you're considering applying for a credit card, search the terms and conditions for "bankruptcy" to see if there are any rules that would lead to a denial.
For example, Capital One won't approve any applicant with a non-discharged bankruptcy. So, while it has some of the best credit cards after Chapter 7 bankruptcy, you wouldn't want to apply if you're in the middle of a Chapter 13 repayment plan.
Citi is another example, as it won't approve applicants with any bankruptcy history in the last two years.
As you compare credit cards, the No. 1 thing to look out for is fees. Specifically, it's the unavoidable fees that are problematic, such as a monthly or an annual fee. Late fees, cash advance fees, balance transfer fees, and other fees of this nature aren't a deal breaker, because those are all charges you can avoid.
The best credit cards after Chapter 7 and Chapter 13 bankruptcy are ones that charge inexpensive or preferably zero maintenance fees.
If you follow good habits with your credit card, that card activity can help you rebuild your credit. Here's exactly how to use a credit card after bankruptcy so that you improve your credit score:
As you recover from bankruptcy, also focus on building financial security. Make a budget so you know how much you can spend each month. Also set up a savings account with an emergency fund and contribute to it regularly.
If you do that, you'll steadily become more financially stable. Plus, as you use your credit card consistently and pay its bills on time, your credit will recover. It takes time, but you'll eventually reach the point where you can qualify for the best credit cards.
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