Life after declaring personal bankruptcy: what comes next
A person walks through the United States Bankruptcy Court for the Southern District of New York in Manhattan, New York, the United States on August 24, 2020.
Andrew Kelly | Reuters
Ever higher consumer debt levels and historically high unemployment rates exceeding 10% in many states have left a growing number of Americans unable to pay their bills and considering personal bankruptcy. While bankruptcy can offer a fresh start for many debtors, it is important to be aware of certain constraints and limitations that can be encountered for years after filing. Here are the most common limitations that debtors face in life after bankruptcy proceedings:
Rent an apartment
Renting an apartment in the first two years after bankruptcy can be particularly difficult. Many large professionally managed apartment complexes will not be rented out to people who have recently filed for bankruptcy. (Or if they do, they’ll often charge an additional security deposit fee or require several months of rent up front.) On average, it takes two to four years after bankruptcy for renting to become easier.
Renting may be easier from an individual owner or smaller apartment buildings, but be prepared to explain your bankruptcy anyway and offer an additional security deposit or rent up-front. Try to move into an apartment you like before the bankruptcy and stay there for at least two years. You will be able to avoid the hassle of finding a new place with recent bankruptcy, plus you will be able to rebuild new credit. You can also sign up for a rental paid reporting service, such as RentTrack or RentReporters, which will report your lease payments on time to the credit bureaus, helping you rebuild your credit faster.
Get a mortgage
Your chances of getting a traditional mortgage usually improve three to four years after bankruptcy, but you should still be prepared to face higher interest rates or make a larger down payment. FHA and VA Mortgages are usually available two years after a Chapter 7 discharge, or one year after a Chapter 13 discharge. In either case, the onus will be on you to prove that you have improved your credit, pay your bills and manage your debts on time and that you have sufficient income to manage your mortgage payments.
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Apply for credit cards
While traditional credit cards can be out of reach for a few years, you can speed up this process by apply for a secure credit card. A secured credit card requires a refundable security deposit as a line of credit, so if you deposit $ 500, you can receive a line of credit for the same amount. After about 12 to 18 months of on-time payments to your secure card, you should start receiving offers for traditional cards.
Start a business
While nothing prevents you from starting a business after bankruptcy, debt financing can be very difficult to obtain for a few years. Banks and online lenders are generally reluctant to lend to those with a history of bankruptcy. Some subprime lenders offer secured loans, which are secured with an asset you own (like your car), but be aware of the risks involved, as well as high interest rates.
You might be better off saving your own start-up capital, pooling some money or asking your friends and family for help, or looking for a business partner with good credit who can get a loan. ready for business.
Find a job
While many employers require background checks on potential employees, bankruptcy won’t necessarily disqualify you from the job. The exception, of course, is if you are looking for a job in finance or accounting, or any other position in which you manage money or financial information. Yet bankruptcy can be viewed negatively even in other professions, so it’s important to have all questions answered ready. If your bankruptcy was caused by an event largely beyond your control – such as a layoff, divorce, or Covid-19 illness – employers are more likely to forgive.
Whatever the reasons for your bankruptcy, it’s important to point out that the past is behind you and demonstrate the steps you are taking to rebuild your credit and build a stronger future. And that kind of fresh start is precisely what bankruptcy promises.