Credit Cards and Rebuilding your Credit after Chapter 7 Bankruptcy
Did you know that credit card debt is one of the biggest reasons people file bankruptcy cases each year? While receiving a bankruptcy discharge can be a huge relief, please be careful as you attempt to re-establish your credit, especially with credit cards. Remember, the interest rates are always terribly high, especially after a bankruptcy. Additionally, credit card companies can raise your interest rates at any time (although they are required by law to give you advance notice). Here are a few things to keep in mind as you attempt to rebuild your credit after you receive your bankruptcy discharge.
First, do not take the first credit card that is offered to you after your case is filed or after you receive your bankruptcy discharge. Even though you are now debt-free (except for your house/rent payments, utilities, and vehicle expenses), you are still financially vulnerable. Unless you received a substantial raise after your discharge or you change jobs, you are still earning the same salary that you were earning prior to the bankruptcy filing. You also probably have very little savings. Take some time to rebuild your savings account. Catch your breath and enjoy being debt-free! Generations before lived very fruitful lives without credit card debt. There is plenty of time to obtain a new credit card.
Contrary to what you have heard, it is not going impossible to begin re-establishing your credit. Many creditors, especially credit card companies, know that if you have filed a Chapter 7 bankruptcy, you can not file another Chapter 7 bankruptcy case again for eight years. Therefore, unlike other people who have not filed bankruptcy, these creditors know that if you do not pay them, you will not be able to file another bankruptcy case for an extended period of time. You might be surprised at how many offers you begin receiving. Don’t fall prey to those solicitations. There is no reason to have more than one or two credit cards anyway. Too much plastic in your wallet can just get you in trouble again!
The truth is you can actually be considered an ideal customer to these predatory lenders. An ideal customer to these creditors is someone who pays high interest, charges over the limit, and then is charged over the limit fees, pays late, and therefore incurs penalties. All of these actions result in hefty fees. Whether you feel vulnerable or not, predatory lenders love to make money on customers like this.
If you do obtain a credit card after your discharge, pay that debt in full and before it is due. Get into the habit of paying your bills as soon as you receive them. Most importantly pay the balance on any post-discharge credit card you receive in full each month. If you can not pay the balance in full, pay as much as you can and take that card out of your wallet. Do not put any additional charges on that card until you are able to pay it in full each month. Do not get caught in the cycle of paying the minimum amount due each month. Paying only the minimum payment due and continuing to use the card will only result in a debt that you can not repay.
Everyone is anxious to start rebuilding their credit after they have received a bankruptcy discharge. However, it is better to be careful and deliberate to make sure that you are making sound financial decisions as you begin your financial fresh start.