Credit cards after bankruptcy discharge?

misty8723 · Jun 9, 2012

My sister was discharged from Chapter 7 bankruptcy about a year and a half ago. She'd like to get a credit card and start re-establishing credit, and asked me if I could help her figure it out. Looks like a lot of them are scams. Does anyone know anything about credit following a bankruptcy? Good places to apply for cards? Any advice. I see a lot of cards offered, but they all seem to come with huge fees.

kailie · Jun 9, 2012

Her best and probably only bet would be to get a secured credit card. We got one with Capital One and it has really helped us repair our credit after some stupidity in our younger years.

catlover19 · Jun 9, 2012

I'm not sure about credit cards after bankruptcy. I don't have the best credit and I have a Capital One secured mastercard. It's one to rebuild your credit. It has a fairly high interest rate and a low limit. I had to pay a $75 deposit to get a $300 limit card. My husband also has the same card and had to pay a $300 deposit for a $300 limit. He had worse credit than me, and about a week and a half ago, our bank offered him a cash back mastercard with a much higher limit. In Canada, the Capital One card has a $59 yearly fee, but it looks like its only $29 there.

bigperm20 · Jun 9, 2012

I was a banker for many years until about a year ago when I was laid off. I've been asked questions similar many times. What type of card you can get to begin the rebuilding process really depends on what your credit looks like after bankruptcy, and how financially responsible you were before you got into trouble. The problem with secured cards is generally a large annual fee, high APR, and of course having to give the bank (most likely) a full surety of your line of credit.
But if that is all you can get that is ok, just keep those things in mind, and don't carry a balance. Use it like cash, and pay the balance on the bill IN FULL every month. This will insure you at least don't pay interest.

Tell her it is not overnight, and will take a long time (several years) most likely. She also needs to understand that the bankruptcy itself will remain on her credit for 7 years. Only some lenders are going to be willing to work with her until it is removed.

If you have other questions plz ask.

natalie_ca · Jun 9, 2012

bigperm20 said:
Tell her it is not overnight, and will take a long time (several years) most likely. She also needs to understand that the bankruptcy itself will remain on her credit for 7 years. Only some lenders are going to be willing to work with her until it is removed.
If you have other questions plz ask.

It sure isn't overnight! I was off work for 4 1/2 years on disability and was forced into bankruptcy when my credit card company refused to work with me. I had made arrangements with them for a lower interest rate and a specific payment amount every month until I returned to work. I never missed or was late for a payment. Just when I was given approval that I could start the process of physiotherapy in order to get back to work, the CC company told me that they were changing the terms of our arrangements. In other words, canceling it and raising the interest to 20%. No way could I pay the payment and that amount of interest on $1500.00 per month fixed income. My income was just enough to pay my rent, buy my meds and pay that CC bill. My table was very lean with almost 1/2 of the month with me eating pretty much only rice.

When I told the CC company that they were forcing me into bankruptcy, the guy told me that they didn't care. I think he was thinking that I was bluffing. I wasn't. I called that same day and made arrangements to see a bankruptcy trustee and 2 days later by the end of the week, I was in the process. That was at the end of November, 2007.

I was discharged from the bankruptcy at the end of August 2008. And returned to work on a back to work program in September 2008, and back on the payroll early December 2008.

I'm not proud that I had to declare bankruptcy because I've always been responsible and have always paid my debts. However, it also left me in the best financial position ever. When I went back to work other than my rent, meds and utilities, I had absolutely no debt. And that's a great feeling.

I was so ticked off with the guy from the CC company that after I was discharged from bankruptcy and back on the payroll, I wrote a letter to the CEO of MBNA and praised them on having such astute employees who encourage people to take the easy way out, and thanks to that guy (I gave his name) I was in the best possible financial position I'd ever been in, and that the money I would normally have been giving to them was being funneled directly into my savings account. I told them that they needed more employees like that guy.

I have such a huge fear of debt now. I know I'll never find myself in such a situation like that again. In late 2009 I applied for a Capital One credit card to start working on rebuilding my credit rating, and and was approved for an amount of $1,000.00. I charge my monthly bus pass to it, and occasionally something I buy online. I do carry a small balance because I was told that if you pay it off every single month you don't build credit. But my balance is usually less than $50.00 per month.

In 2010 I applied for an increase to $5,000 because I wanted to purchase some furniture online from Leon's. However, while I was on the phone with the guy, he gave me the full total and I immediately made a payment on my credit card for that value.

So far as only certain companies working with you, that is so true. My bank won't have anything to do with me so far as credit goes. If I shopped around for financial institutions I would likely be able to get credit (credit cards from a bank are less costly than ones from Capital One), but I've been too lazy.

I think in Canada the bankruptcy stays for 6 years after discharge. So I have 2 more years to go before it's removed from my credit report.

misty8723 · Jun 10, 2012

Natalie_ca said:
I do carry a small balance because I was told that if you pay it off every single month you don't build credit. But my balance is usually less than $50.00 per month.

I was watching Suze Orhman (sp?) show last night and she said you don't have to carry a balance to rebuild credit. I don't know anything more about it than that.

misty8723 · Jun 10, 2012

Thanks to all who replied. My sister's situation is that she was laid off from work, and has a growing number of serious medical problems. She was doing okay with paying the minimum payment every month, but one month she didn't figure her bank account correctly and bounced two checks. That was when her nightmare started, thanks to the bank fees for the bounced checks and the fact that the credit card companies immeidately raised the interest and minimum payments. I think she had two or three cards, and only one was willing to work with her and suspend her account for a while. I was helping as much as I could, but I'm not rolling in money either with DH being out of work for many years, so bankruptcy was the only solution. I even had to pay the lawyer the bankruptcy fee, that's how bad it was.

She is in better position now, but not great since she is on disability because of her medical problems. She really just wants a credit card with a very small credit limit ($300 is more than enough), but I can't see her having to pay $69 a year or whatever to have that. And I have heard that the pre paid ones are not a solution because they don't report to the credit bureaus anyway. I have seen the ones where you deposit $xxx in a special bank account, and that would be an ideal situation for her I think, but again, $69 a year is just not worth it in my opinion.

I worked for a Chapter 13 Bankruptcy Trustee for many years, so I do know a little bit about the process, and we had someone on staff who helped people establish credit after their debt was discharged. However, that service wasn't available where my sister filed. She has been getting credit card offers in the mail, I think from Capital One.

rafm · Jun 10, 2012

Reestablishing credit post-bankruptcy means you have to pay higher fees and it costs you to have the privilege of carrying credit. It may sound predatory, and in some cases it is, however, you have shown you can't handle debt (for WHATEVER reason) and companies aren't just going to hand over large sums of their cash for you to play with just yet.

We discharged from our bankruptcy in 2005. One year later we bought a house. Sure, we had a terrible interest rate but we got into a home, which goes a long way towards repairing credit. We will either refinance or sell this year or next but it has built our credit. We also got several of the predatory cards and managed those quite well until our credit was strong enough to get a regular card, we then closed the 'bad' cards. It takes a lot of work to repair your credit and there is some pain involved, including paying fees and higher interest rates, but you have to go through those things to really get to the other side.

We are 7 years this year, September, and we are in a much better place than we were then. We learned a lot of lessons and it changed how we live. We had to declare bankruptcy because I was laid off, had an accident that left us with a $60,000 medical bill and a bunch of stupid debt from making some bad decisions. One or two of those we might have handled, add them all together and we couldn't make it.

natalie_ca · Jun 10, 2012

Misty8723 said:
I was watching Suze Orhman (sp?) show last night and she said you don't have to carry a balance to rebuild credit. I don't know anything more about it than that.

Thanks. I'll have to look into that more. It's been bugging me to keep a balance, because that means I owe money, and that idea totally freaks me right out!

misty8723 · Jun 10, 2012

RAFM said:
Reestablishing credit post-bankruptcy means you have to pay higher fees and it costs you to have the privilege of carrying credit. It may sound predatory, and in some cases it is, however, you have shown you can't handle debt (for WHATEVER reason) and companies aren't just going to hand over large sums of their cash for you to play with just yet.
We discharged from our bankruptcy in 2005. One year later we bought a house. Sure, we had a terrible interest rate but we got into a home, which goes a long way towards repairing credit. We will either refinance or sell this year or next but it has built our credit. We also got several of the predatory cards and managed those quite well until our credit was strong enough to get a regular card, we then closed the 'bad' cards. It takes a lot of work to repair your credit and there is some pain involved, including paying fees and higher interest rates, but you have to go through those things to really get to the other side.
We are 7 years this year, September, and we are in a much better place than we were then. We learned a lot of lessons and it changed how we live. We had to declare bankruptcy because I was laid off, had an accident that left us with a $60,000 medical bill and a bunch of stupid debt from making some bad decisions. One or two of those we might have handled, add them all together and we couldn't make it.

Higher interest rate is fine. Putting money into a special account to secure the card is fine. But a $75 "processing fee" for a $300 limit is not worth it. The limited research I have done cautions against getting a credit card with a processing fee, or a prepaid card. I don't see $300 (or less) as large sums of the banks cash, especially if it is already in a secured bank account in case of default, but whatever.

liberal007us · Nov 14, 2012

I really don't understand how people who file bankruptcy would want to re-establish credit? You see, to re-build credit it requires one borrows $$$. A little or a lot, it is borrowed $$$. The way I understand it, having borrowed $$$ that one day could not be paid (for whatever reason) led one to bankruptcy. So in essence, re-establishing credit is the same thing as starting on the path to the next bankruptcy (which one can do in 8 years after the first one).

When I filed my bankruptcy I was soooo ticked off at the world (and the banks) that when my attorney told me the day of my hearing to wait a couple of months and go and open a secured credit card to rebuild my credit, I told him to kiss my....well you get the point....and told myself to never again go through that again. So when everyone around me repeated the same moronic recommendation I paid my attorney to hear, I decided to live my life debt free. I checked my credit report, I made sure the banks who did not get paid corrected the status of all the accounts to 0.00 balance and discharged in bk, and started to budget for everything I wanted to buy. I lost my house in the bankruptcy too. So I called the local credit union I belonged to and asked them what would I need to do to qualify for a mortgage loan again after the foreclosure/bk. This kool lady there told me that I could be eligible for an FHA Home Loan in 36 mo's after the foreclosure and since I did the bk, I did not have any bad debt on my record as such I would qualify for the loan also. I needed to maintain steady income for the next 2 years and to save as much $$$ as possible to have for a down payment and reserves. she told me that the bank liked to see one had $$$ in the bank even if it was not used for the down payment, especially after a bk.

Ok. So the only thing I wanted to buy that required credit was a mortgage loan and FHA would finance it without me having to rebuild my credit. Basically, all I needed was to not have bad credit, and bad credit is debts pending and behind in collections. So I did not have bad credit. I had NO credit and she told me all I needed to proof was that I paid my rent in time, that I paid three other things on time (insurance, light, heat, etc.) and that I had $$$ in the bank. That's it!!!

I have had no need for credit since (Discharged 1998). Bought my first house in 2001. Bought my investment properties (three of them) in 2005. Have bought three new (well 1 year old's) cars since. Travel on vacations twice a year (a different place each time). Rented and apartment immediately after the bk, rented cars galore!!!, stayed at hotels, bought cell phones and services, etc....and I did not need credit....Had to make sure I did NOT have BAD credit....but did not need credit to do so, and $$$ in the bank.

All I needed was patience, planning, to behave my age and $$$. As an adult I realized that I was behaving like a teenager everytime I used my credit to buy or do anything. I wanted it all then and then. Not when I could or had the $$$ for it. And I excused such childish and immature behavior on the belief that I needed to build my credit. Well, look how that worked out for me. Ended up bankrupt!!!

In conclusion, tell your relative that re-establishing credit after bk is the same thing as repeating the same behavior that led her to bankruptcy in the first place. Tell her to clean up her credit (update the credit reports), tell her to budget and plan her expenditures and to save for everything she wants. The belief that one needs credit to live and progress in this society is bullcrap. Such only benefits the lenders, not the debtors. Just my two cents to the topic.

GoldyCat · Nov 14, 2012

Misty8723 said:
Natalie_ca said:

I do carry a small balance because I was told that if you pay it off every single month you don't build credit. But my balance is usually less than $50.00 per month.

Click to expand...

I was watching Suze Orhman (sp?) show last night and she said you don't have to carry a balance to rebuild credit. I don't know anything more about it than that.

The credit card companies report whether you've made all payments on time or if you have late payments, so carrying a balance does not affect that. The only part that carrying a balance affects is that your rating drops if you owe too high a percentage of the total amount of available credit. There is no advantage to carrying a balance, and a huge disadvantage in that you have to pay interest every month.

odiakkoh · Nov 14, 2012

Liberal007us said:
I really don't understand how people who file bankruptcy would want to re-establish credit? You see, to re-build credit it requires one borrows $$$. A little or a lot, it is borrowed $$$. The way I understand it, having borrowed $$$ that one day could not be paid (for whatever reason) led one to bankruptcy. So in essence, re-establishing credit is the same thing as starting on the path to the next bankruptcy (which one can do in 8 years after the first one).

When I filed my bankruptcy I was soooo ticked off at the world (and the banks) that when my attorney told me the day of my hearing to wait a couple of months and go and open a secured credit card to rebuild my credit, I told him to kiss my....well you get the point....and told myself to never again go through that again. So when everyone around me repeated the same moronic recommendation I paid my attorney to hear, I decided to live my life debt free. I checked my credit report, I made sure the banks who did not get paid corrected the status of all the accounts to 0.00 balance and discharged in bk, and started to budget for everything I wanted to buy. I lost my house in the bankruptcy too. So I called the local credit union I belonged to and asked them what would I need to do to qualify for a mortgage loan again after the foreclosure/bk. This kool lady there told me that I could be eligible for an FHA Home Loan in 36 mo's after the foreclosure and since I did the bk, I did not have any bad debt on my record as such I would qualify for the loan also. I needed to maintain steady income for the next 2 years and to save as much $$$ as possible to have for a down payment and reserves. she told me that the bank liked to see one had $$$ in the bank even if it was not used for the down payment, especially after a bk.

Ok. So the only thing I wanted to buy that required credit was a mortgage loan and FHA would finance it without me having to rebuild my credit. Basically, all I needed was to not have bad credit, and bad credit is debts pending and behind in collections. So I did not have bad credit. I had NO credit and she told me all I needed to proof was that I paid my rent in time, that I paid three other things on time (insurance, light, heat, etc.) and that I had $$$ in the bank. That's it!!!

I have had no need for credit since (Discharged 1998). Bought my first house in 2001. Bought my investment properties (three of them) in 2005. Have bought three new (well 1 year old's) cars since. Travel on vacations twice a year (a different place each time). Rented and apartment immediately after the bk, rented cars galore!!!, stayed at hotels, bought cell phones and services, etc....and I did not need credit....Had to make sure I did NOT have BAD credit....but did not need credit to do so, and $$$ in the bank.

All I needed was patience, planning, to behave my age and $$$. As an adult I realized that I was behaving like a teenager everytime I used my credit to buy or do anything. I wanted it all then and then. Not when I could or had the $$$ for it. And I excused such childish and immature behavior on the belief that I needed to build my credit. Well, look how that worked out for me. Ended up bankrupt!!!

In conclusion, tell your relative that re-establishing credit after bk is the same thing as repeating the same behavior that led her to bankruptcy in the first place. Tell her to clean up her credit (update the credit reports), tell her to budget and plan her expenditures and to save for everything she wants. The belief that one needs credit to live and progress in this society is bullcrap. Such only benefits the lenders, not the debtors. Just my two cents to the topic.

Can't get very far in life without it. Many jobs nowadays require good credit, it's not about just borrowing money anymore. And you can reestablish credit without having to borrow long term. Use the card, put the money aside and pay off the card every month is enough to show you can be trusted with a credit card.

tara g · Nov 18, 2012

odiakkoh said:
Can't get very far in life without it. Many jobs nowadays require good credit, it's not about just borrowing money anymore. And you can reestablish credit without having to borrow long term. Use the card, put the money aside and pay off the card every month is enough to show you can be trusted with a credit card.

We are learning this now....

I have really great credit, mainly because from the time I was 18 my ex and I would take out small loans to pay for cars we could actually pay for in cash, and even though I'm out of a job right now, I have a mortgage on a house which is keeping my credit up there. My BF hasn't had debt for 2+ years - since his last car loan. We are trying to buy a house, and even though his income is WAY more than enough to cover the mortgage on it, the lender is giving a hard time due to no credit score calculating because he's had no credit cards, loans, or debt on his report since 2010. We've had to open 2-3 trade lines in his name using secured credit cards in the last 2 weeks or so, which definitely will ding his credit. Luckily when we pulled his credit reports in October, they showed a score for one bureau, and as of yesterday, a second bureau is showing, and they are still high 660s+ (lender requires 640s). The stuff that shows on his credit report does show he never missed a payment and everything was paid in full.

I think it is ridiculous that you have to have some kind of debt, or else its like fighting tooth and nail to get a credit card or a mortgage. We are crossing every finger and toe we can that by December 23 the lender will be able to calculate a credit score for him, because the house in contingent to us receiving the financing and Dec 28 is closing. Things have gotten so much more strict as well. I got financed right away for my $188k house in 2008. He is having issues getting financed for a $90k house making nearly 1.5x what I made when I got my mortgage. They said everything looks amazing debt-to-income ratio wise, just that darn credit score not having enough activity to calculate for whatever system the lender used to check.

GoldyCat · Nov 18, 2012

Tara G, I have a friend who was in the same situation. He has an absolute horror of going into debt and refuses to use a credit card. He would even use a business credit card from his work to make hotel reservations and then pay in cash when he got to the hotel. He couldn't seem to get it through his head that buying everyday things with a credit card and paying it off every month is not going into debt. Anyway, when he wanted to buy a house he couldn't even get a loan from the bank where he'd done business for 35 years. Having a score of 800+ doesn't mean a thing if you don't have a record of financial responsibility.

tara g · Nov 21, 2012

Our plan would be to pay them off every month as if it were cash. That's what I did with my old card. My credit report shows its still active, I'm thinking of getting it reissued. I know certain cards allow people to be added as Authorized Users and they can benefit from it. (And others don't give AU's any benefit from it). He just found it easier for so long to just use cash instead of get a card since so many people get into trouble with them. Easy to use plastic to spend and not think twice about it.

We are STILL waiting on credit cards to show up ... it's been over 3 weeks since we applied for them. One of them was approved 3 weeks ago and still hasn't shown (they emailed Monday saying it was finally on its way, even though they took the secured deposit out on 11/6!), and now the mortgage people are wanting to pull his credit again, knowing that nothing has changed... which is going to hurt it more. The BF has seen the holes people dig with credit cards and just found it easier to not use any. The only card he has is his debit card that he sometimes uses under credit, and a corporate credit card from his job. Yesterday, the mortgage guy called and said he didn't feel comfortable pulling it again because nothing will have changed - we have until Dec 23 to get it approved. The realtor asked him to fill out an application though because we only have until 11/23 to submit one. Now suddenly the mortgage guy said he will repull on Friday. Ugh. Hoping to call him and see if there's a way around that til December, since he agreed its better to do it then.

My mom and brother are both so far into credit card debt, it showed me what NOT to do. Some days my mom uses her credit card to pay my brother's credit payment so his rate doesnt go up. *Face palm* I actually wonder how my brother has managed to get so many store cards at once with zero history, yet BF couldn't get a Sears store card with his non-recent history. Though I've heard Kay's/Jared Jewelers give them pretty easily. When my parents moved to NC, my dad was unaware my mom had $35k in CC debt. Somewhere along the line, they refinanced their house, used $100k to pay off debts, and are about $15-20k back in debt. Both of the BF's parents have let houses foreclose, so they couldn't even cosign for him. He doesn't want to end up like that either.

emfn · Nov 22, 2012

i filed for chapter 7 bankruptcy 10 years ago and it was the best thing i ever did! once the bankruptcy was discharged i started getting offers in the mail for unsecured cards . i got 3 new unsecured credit cards right away. 2 of them were from the same companies i had included in my bankruptcy!! they are high interest/ high risk cards but they are unsecured nonetheless.

people who just filed bankruptcy are the best people to grant credit to because of two reasons: 1) you don't have any outstanding credit card debt. and 2) you can't screw that credit card company over by filing bankruptcy again for another 10 years so you'll be stuck with them.

dont feel guilty filing bankruptcy...its your constitutional right! it helps your credit to file in the long run! because if you have all this outstanding debt in default then your credit is already shot... so you might as well file for bankruptcy because it wont be any worse and at least you wont have any debt

montiparel510 · May 29, 2013

I have a Hilton Credit Card and iled for chapter 7 bankruptcy 2 years ago. For those who have filed bankruptcy, you must be aware that about 35% of the credit score is based on your payment history. This means that one of the best ways to improve your credit score is to settle your financial obligations on time.

sqrounddancer · Aug 8, 2014

The best card i found was Wells Fargo secured card 300 minimum deposit with 25 annually fee and 19.99 percent interest. Was very reasonable, i opened a Wells Fargo savings account with a banker put my 300 in it. And the sent the card and took the 300 out then the banker closed it. So the 300 was set aside.

Credit cards after bankruptcy discharge?

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