One of the most common questions debtors ask bankruptcy lawyers is "Will I be able to get credit after filing bankruptcy?". Most people are suprised to find their mailboxes flooded with new credit offers after filing bankruptcy. Why does this happen? Why would a creditor give more credit to someone who has filed bankruptcy? Creditors make money by lending money. If creditors don't lend money, they don't make money. Even credit cards for people with the best credit ratings often carry credit card balances that will not be paid off within the next 20 years if the debtor pays the minimum monthly credit card payment. Creditors lend money based upon a debtor's debt to income ratio. Debt to income ratio is the amount of debt a debtor has versus the amount of money the debtor earns. If a debtor has monthly debt that exceeds the debtor's monthly income, the debtor is obviously a poor credit risk and it is unlikely that a creditor will risk loaning money to the debtor. What happens to a debtor's debt to income ratio when the debtor files bankruptcy? The bankruptcy will wipe out the debtor's debt and leave the debtor with the same income. Filing bankruptcy transforms the debtor's debt to income ratio and creates a positive lending prospect for the creditor. Creditors also know that the debtor who has filed a chapter 7 bankruptcy will not be able to file another chapter 7 bankruptcy for 8 more years under the new bankruptcy law. Creditors know that the debtor who has filed bankruptcy is stuck with whatever new credit is issued and will not be able to discharge the debt as easily in a second bankruptcy. Filing bankruptcy can actually improve the credit outlook for many debtors. Most bankruptcy lawyers offer free consultations to discuss bankruptcy and credit issues. |
