Chapter 7 Bankruptcy Aftermath
Hi everybody, Edward Kelly here, your Oklahoma bankruptcy attorney with another three minutes to financial freedom. Today we’re going to talk about what happens right after bankruptcy. Okay, good question.
So as I’ve said in other videos, a bankruptcy at Chapter 7 takes 90 days like clockwork. We file it, you have your little creditor meeting by telephone at present due to COVID. It takes about five minutes, 30 days in, then you have 60 days to the discharge, and in that time you want to execute and file any reaffirmations like on your car, file any motions, anything that anybody wants to do needs to happen in that 60 days. Then at the 90 day mark comes the discharge, and shortly after that the case is closed, if all the business has been attended to.
What Happens to Your Credit Score after Bankruptcy?
So what happens right after? Well a lot of people think, oh my credit will be ruined. Actually, in many cases your credit score will improve. A lot of people don’t know credit scores are based on, yes, to some extent your faithful payment, but also and perhaps more on your debt to income ratio, meaning here’s my income and here’s how many payments I have to make out of that every month because of my debt. And when you don’t have anything left over, you’re a terrible credit risk and your credit score goes down. So when you do a bankruptcy, that debt to income gets perfected. All that debt goes away. Now a lender’s looking at that income and there’s nobody taking any piece of that, and there’s lots of room for them.
In addition, a Chapter 7 can only be filed once every eight years. So savvy lenders, and there are many, know that if you’ve just done one, you can’t do it to them. Certainly not before they have time to sue you and garnish you. And they’re well protected because you just did it. So what will almost always happen, and my clients are always surprised, I tell them this before and then they’re still shocked, is you will be flooded with offers for credit cards, for credit, for loans.
Taking Advantage of Credit Opportunities after Bankruptcy
Many of these, of course, are going to be predatory. You’ve just done a bankruptcy. Many of these will have bad interest rates. The credit cards may have huge annual fees and then monthly fees. Be careful. But you will certainly be flooded with opportunities for credit, including car notes or auto places that specialize in people who are just out of bankruptcy. So that’s good. If there’s something you need that’s a good deal and that works in your fresh start, however many times it’s not good because they’re preying on you by offering you this.
What I’ve always heard and has been borne out by my clients reports back to me, is you get one credit card, you run it continuously at about a 30% balance. Because actually if you pay it off every month in full, it has less of a positive impact than if you leave about a 30% balance. Apparently that’s the sweet spot. And that’ll get reported to your credit, which will raise and raise and raise. Your debt to income has been perfected. And before you know it, well before the 8 to 10 years before the bankruptcy drops off, your credit will be back in good shape. And if it was bad before you filed, it’ll probably be higher.
Take the Next Step towards Financial Freedom
This has been what happens right after bankruptcy. As always, you can reach me, an Oklahoma City bankruptcy lawyer, directly at oklahomacitybankruptcyattorney.pro or call me (405) 563-7888 for a free consultation.