Group Photo of Attorneys Stewart, Sorice, Farrell, Finoli & Cavanaugh, LLC

How does bankruptcy affect future lending?

On Behalf of | Jan 31, 2020 | Bankruptcy |

Filing for bankruptcy does have consequences. It can cause you to lose property to liquidation. If you have co-signers on a loan and you file for bankruptcy, they could shoulder at least some of the responsibility for your debt. According to Experian, bankruptcy also has a negative effect on your credit. This could make it difficult for you to borrow money, at least for a while.

However, the negative effects of bankruptcy are not permanent, nor are they intended to be. Eventually, the negative information will drop off your credit report. Until that time, however, it may be difficult to obtain new loans or credit cards.

It may be possible to obtain a new mortgage after filing for bankruptcy, but lenders may be more likely to decline your application. Even a lender willing to extend you a mortgage may charge higher fees or require you to make a larger down payment. If you own a home now, it may be preferable to reaffirm your current mortgage during bankruptcy and stay in your current location than to give up your home and attempt to get a new mortgage after discharge.

You may wish to obtain a new credit card following bankruptcy in the interest of rebuilding your credit. However, card companies may be reluctant to give you credit with negative information regarding bankruptcy on your credit report. It may be easier once the information drops off, but if you do not want to wait that long, you may have to accept a higher interest rate. Adopt good credit habits and pay your balance every month on time to help improve your credit score.

Bankruptcy has negative consequences in the short term. However, its purpose is ultimately rehabilitative.