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How Lenders View Life After Bankruptcy

Many people who struggle with debt shy away from bankruptcy. They are afraid it will damage their credit score and lead to financial ruin. Will they ever be able to take out a credit card or apply for a home mortgage? Will they be able to open a new checking account or rent an apartment?

Yet, while the implications may seem daunting, the reality is much different:

First, bankruptcy is common. Over 1.4 million Americans filed for bankruptcy in 2011 alone.

Second, bankruptcy does not lead to financial ruin. Instead, it can provide relief from financial crisis. It can be the beginning of a more positive, financially secure future.

Third, a recent Texas A & M study found that more than four out of every five bankruptcy filings is the result of an adverse event that was outside of the filer's control, such as job loss or a significant medical event. In fact, more than one-half of U.S. bankruptcies involved medical debt over $5,000.

Lenders understand these points. Most lenders know that bankruptcy by itself does not reflect an individual's ability to handle personal finances. In fact, many financial institutions find those who file bankruptcy to be a lower risk than the general public because bankruptcy protection is not available for several years after filing for the first time.

Applying for Credit After Bankruptcy

Chapter 7 bankruptcies allow lenders to start over financially, and applying for the right credit cards after bankruptcy can help you rebuild your credit. This means applying for a credit card, paying back your credit card debt in full every month and making all monthly payments on time.

Some credit card companies offer specific approaches for individuals who are working to rebuild credit. For example, many companies have low annual fees, easy ways to track expenses, and protection from overdrafts. Many companies also require a fairly low security deposit to obtain a secured card.

There are many other options for building credit and becoming financially secure after bankruptcy. Speak with an experienced bankruptcy lawyer to learn more.

Source: Fox Business, "Best Credit Cards After Bankruptcy," Curtis Arnold, Apr. 9, 2012.

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