Tuesday, 25 October 2011

Credit After Bankruptcy

Most people think there is no life after bankruptcy, much less credit. If it’s the first time you have experienced bankruptcy, it is understandable. People tend to feel once they have been declared bankrupt, no creditor will look at them. That no one will have confidence in them anymore to extend credit to them. However, this is not true. You can avail of credit even after bankruptcy.

Once you are declared bankrupt, whatever assets you possess will be used to cover your debts. You will be expected to start afresh as far as your earnings and savings are concerned. But did you know that you can keep your credit card even after you are declared bankruptcy.

What this means as far as you are concerned is that you have access to credit through your credit card. It could happen, of course, that your card company could just find out about the bankruptcy and have your card cancelled, the way American Express does to safeguard themselves against bad debts. But many companies let you continue to keep and use your card provided you reaffirm the debt amount and this should be after you do the filing for bankruptcy. So your credit continues and it will, on condition that you take on the original amount of your debt.

Is there any rationale behind this? Creditors, as is understandable, do view bankruptcy as a threat. But they also see your line of credit as their business. If they cut this off, how will they recover the money that you owe them? By using bankruptcy to exchange credit for full payment of your debt, they safeguard their own interests and do not lose out.

Bankruptcy for most is wiping the slate clean and the chance to start anew. The credit companies want to be there when that happens which is why they allow you to continue using your card after bankruptcy. It is not as though there will not be consequences however. There will be conditions imposed on you by the credit card companies after bankruptcy and you will have to comply with them if you want to hold on to your card. You’ll find you have a lower limit and this is a wise precaution that any company will take as you have just proved your unworthiness as far as credit is concerned.

So you will be muzzled and will not be able to spend more than you can afford to pay. Some companies make you shell out more if you want the privilege of holding on to their card. This is yet another precautionary measure by companies. So while credit after bankruptcy is hard, it’s not impossible and you can enjoy it with a few rules to rein in your spending.

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