Most American families use multiple kinds of credit to keep the household financially solvent. People finance big purchases, like vehicles and houses. They may also use credit cards to pay for costs that exceed their monthly budget, like unexpected vehicle repairs.
However, when someone’s debt reaches unsustainable levels, they may have to make difficult decisions. Some people choose to file for consumer bankruptcy. Depending on the circumstances, the bankruptcy process can discharge the balance owed on their credit cards and other unsecured debts.
Will filing for bankruptcy eliminate your ability to use consumer credit like credit cards and car loans?
Bankruptcy closes most accounts and changes your credit score
When you file bankruptcy, you will report your debts and financial accounts to the courts. Your creditors will most likely cease collection activity and close your accounts early in the bankruptcy process. When the courts finalize your bankruptcy, the remaining balance on those accounts will be eligible for discharge, meaning you won’t have to pay off those debts.
While you won’t be able to use those lines of credit in the future, you will eventually qualify for credit again. Many people can obtain a credit card that requires a deposit or offers suboptimal terms within half a year of their bankruptcy discharge.
Those who work to rebuild their credit can often qualify for better credit cards later. A mortgage or car loan may even be possible after two or three years. The bankruptcy records will come off of your credit report eventually, meaning that your bankruptcy won’t affect your credit options at all.
Learning more about what happens during a personal bankruptcy filing can help you decide if you should file.