About Recovering from Bankruptcy

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By Barbara Cedillo Alvarez
eHow Contributing Writer

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Declaring personal bankruptcy is often an emotional event, reluctantly decided and acted on. People who find themselves having to consider this very significant step have many questions about being able to obtain new credit in the future or how bankruptcy will affect their credit rating and ability to rent or buy a home. If you are able to receive new credit, what will the interest rates be? How can you repair your credit and what will you have to do? Which debts will be discharged in a personal bankruptcy and which will you still have to pay?

Aftermath

Declaring bankruptcy is a process involving reconstructing finances, pulling paperwork together, learning what the debts are versus the assets and asking many questions about past financial decisions. In this process, the debts which will be discharged are identified. After the bankruptcy hearing, the judge makes his decision about each request; once your request has been granted, you know what debts you have remaining to make timely payments on. Even so, realizing what an impact a declaration of bankruptcy can mean for your personal and financial future often takes many months to fully realize.

Effects

While people who are struggling with too much debt aren't able to obtain new credit because of credit scores, those who have just declared bankruptcy can generally apply for and receive new credit because the credit bureaus pay more attention to recent financial events than those which took place in the past.

It will be possible to apply for and obtain a new mortgage or car loan; however, you will have to show a recent credit history which includes on-time payments on your current obligations.

Considerations

A declaration of bankruptcy remains on your record for 10 years. It will be much more difficult, although not impossible, to obtain new credit in that time period. Managing new credit wisely and making regular payments on time will go far toward increasing your credit score to a much higher rate in just a few years.

Benefits

Chapter 7 bankruptcy discharges all eligible debts completely. Debts not discharged by Chapter 7 bankruptcy include alimony, child maintenance obligations, the last three years of income tax debt, federal student loans, debts for willful or malicious injury, death or personal injury resulting from DWI or criminal restitution orders. Once you have had your debts discharged, you know exactly where you stand with your remaining debts; learn to treat these debts with respect and pay them on time each month.

Warning

Those choosing to apply for new credit cards should be very careful and make special note of any APR or interest rates which they will be given. People who have just declared bankruptcy are given much higher interest rates regardless of the fact that they may not be able to bear the resulting monthly payments.

Many people who have recently declared bankruptcy and had a percentage of their debts wiped clean make the mistake of assuming they are completely debt-free. They continue to ignore their remaining financial obligations and soon find themselves being hounded again by bill collectors. These people should participate in counseling to learn why they make poor financial decisions and neglect to pay their monthly obligations.