Can Delaware Debtors Apply for Credit After Filing for Bankruptcy?

Anyone in Delaware who has ever found themselves buried under insurmountable debt has likely entertained the idea of filing for bankruptcy protection. Given the current state of the economy, many consumers are leaning toward filing as their debts continue to accrue and their savings continue to dwindle. 

However, even though bankruptcy can offer much needed relief for debtors, it’s natural for those who have considered filing to have reservations about the process. Many have qualms about losing their existing lines of credit and fear they will not be able to obtain new credit for years. This couldn’t be further from the truth.

What Really Happens When You File for Bankruptcy

Whether a consumer files for Chapter 7 liquidation bankruptcy or Chapter 13 reorganization bankruptcy, two things are certain: 

1. Debtors can expect to have most of their unsecured debts either completely discharged (Chapter 7) or significantly reduced (Chapter 13)
2. The filer’s credit score will be impacted as a result and their credit card accounts will almost certainly be closed

Yes, it’s a trade-off, but for most debtors, it’s for the greater good and the impact will not be devastating. After all, many consumers who file for bankruptcy have either missed payments on their credit cards, personal loans, or mortgages and are in danger of foreclosure, or exceeded their credit utilization (the percentage of a consumer’s credit line that has been used). Their credit scores are likely to have taken a hit and their chances of obtaining new lines of credit are slim. Bankruptcy won’t put much more of a dent in a consumer’s credit score at this point.

Understanding the Bigger Picture

Sure, bankruptcy will have an impact on your credit score, but it’s neither as bad as people might think nor as difficult to bounce back from. The truth is, bankruptcy is not a financial death sentence. Yes, you will lose your existing credit cards, but you will be able to qualify for credit again.

Obtaining New Lines of Credit Post-Bankruptcy

Once you exit bankruptcy in Delaware, the first step toward building your credit back up is to obtain a secured credit card. A secured card is similar to a prepaid card in the sense that what you contribute to the card’s balance will be your “limit”. 

If you keep utilization below 30% consistently, your credit score will be positively impacted and lenders will be much more likely to extend a new line of unsecured credit (a traditional credit card). Many consumers are able to obtain a line of unsecured credit within a year or two after bankruptcy discharge. Granted, the limit may be just a fraction of what you once had, but it’s a start.

If you still have questions about your future ability to obtain credit, speak with a Delaware bankruptcy lawyer for more precise details on what you can expect.