When individuals are facing overwhelming debt, they may turn to bankruptcy as a way to regain control of their finances. Two common types of bankruptcy are Chapter 7 and Chapter 13. Each type has its own set of rules and implications, including how it can affect their ability to obtain a credit card.
Chapter 7 Bankruptcy
- Chapter 7 bankruptcy, also known as liquidation bankruptcy, involves the sale of the debtor’s non-exempt assets to repay creditors.
- Debtors typically receive a discharge of their remaining unsecured debts, such as credit card debt, at the end of the process.
- Chapter 7 bankruptcy remains on their credit report for up to 10 years, which can make it challenging to qualify for new credit, including credit cards.
- However, some individuals may still be able to obtain a secured credit card or a credit card with a high-interest rate shortly after their bankruptcy discharge.
Chapter 13 Bankruptcy
- Chapter 13 bankruptcy, also known as reorganization bankruptcy, involves creating a repayment plan to pay off all or a portion of their debts over three to five years.
- Debtors are not required to sell their assets in Chapter 13 bankruptcy, making it a popular choice for individuals with valuable assets they wish to keep.
- Chapter 13 bankruptcy remains on their credit report for up to seven years, which may still impact their ability to qualify for new credit cards.
- However, some individuals may find it easier to obtain a credit card during their Chapter 13 repayment plan, as they are actively working to repay their debts.
Impact on Obtaining a Credit Card
Both Chapter 7 and Chapter 13 bankruptcy can make it more difficult for individuals to qualify for new credit cards. Lenders may view them as high-risk borrowers due to their recent bankruptcy filing. However, with time and responsible financial behavior, they can begin to rebuild their credit and improve their chances of qualifying for credit cards in the future.