What Really Happens After Filing for Bankruptcy
Common Misconceptions of the Consequences of Bankruptcy
The idea of becoming bankrupt has a lot of negative connotations associated with it. Becoming a social pariah and ruining credit are two of the big ones. In reality, bankruptcy doesn't affect either to that great of a degree. Social stigma is easily avoided and as for credit, well. Chances are good that the credit rating is already pretty much shot. Don't let these two issues hold back the decision to file, as they're not very good ones to rationalize with.
No One has to Know About the Bankruptcy
True, a bankruptcy is a matter of public record. And with a few exceptions, the only way someone is going to find out about it is if they're told. Someone who really wants to find out has to be able to pull a credit check or know how to access the court records.
The credit check is difficult since it requires a social security number. It's not like the social is going to be given to just anyone, and with states moving to ban credit checks for employment, it leaves a small pool of people authorized to see a person's credit file. Accessing court records takes a trip to the courthouse or going through the online interface.
Taking all of this into account, it's difficult for news of someone's bankruptcy to get out. Keep lips sealed to hold onto the secret.
The Hit to the Credit Rating is Temporary
Bankruptcy stays on a file for ten years, but its impact diminishes as time passes. It is possible to get an unsecured credit card almost immediately after discharge. They will be low limit cards with high interest and annual fees, but it is a place to start from.
Secured cards can come in handy as well. Putting more money onto the card creates a higher credit limit. There is no way to determine if the limit was authorized by the card issuer or by a deposit. In turn, this makes the borrower look like a good risk to lenders. Certainly it's gaming the system, but there are no rules against doing so. Taking advantage of this little fact can help someone get back on their feet more quickly post-bankruptcy.
Relax, Take a Deep Breath
And don't forget to bring your towel. Life returns to normal fairly quickly after discharge. Credit improves as time passes, not to mention that there's a lot more money in the pocket than there once was. Take this time to learn from the lessons learned by going through bankruptcy.
Cash is truly king. Save money and put some of it into retirement funds or invest somewhere. Don't sweat the need to have some kind of credit rating. Chances are good that up until the bankruptcy that the rating was already shot. So in reality, credit was being lived without before filing. The only difference now is that there is cash on hand and a brighter outlook for the future.