Bankruptcy is known as a "last resort" for beleaguered borrowers for a very good reason: It negatively affects the long-term credit outlooks of those who use it to discharge their debts. Depending upon the jurisdiction in which it occurs, the effects of a bankruptcy filing can persist for up to 10 years. Before you declare bankruptcy, determine whether you can afford to exist without access to reliable, low-interest forms of traditional financing for the better part of a decade.
After your filing, you may not be able to secure credit outside of high-cost non-traditional credit facilities like payday loans. The riskiness of these products far outweighs any benefits associated with them. Even if you can secure traditional credit cards or personal lines of credit, your borrowing limits are likely to be quite low and the interest rates that you'll be asked to pay on past-due balances may be exorbitant.
You'll be stuck in this unpleasant credit limbo until your credit score begins to improve. Since your credit score is determined by a variety of factors, its recovery won't follow a precise timeline. If your credit score was fairly high immediately before you declared bankruptcy, it will recover faster after your filing. Likewise, an already-depressed credit score will fall further after bankruptcy and may remain low for years to come.
Once you are able to obtain traditional loans, you may be required to put up extra collateral until you've demonstrated your ability to pay your bills on time. To secure a business loan or personal line of credit, you may need to use your vehicle, jewelry collection or furniture set to guarantee your debt. To obtain a mortgage or vehicle loan, you may have to put down a sum of cash equal to a significant proportion of the asset's underlying value. These days, many mortgage lenders require 20 percent of a home's value in cash before agreeing to issue a loan for its purchase.
Unless you had excellent credit before you filed for bankruptcy, it's extremely unlikely that you'll be able to get a mortgage just one year after your debts have been discharged. Most lenders prefer to wait two or three years before issuing new mortgages. You may be able to circumvent this benchmark by putting down half or more of the home's value. However, this may cost you tens of thousands of dollars and provide relatively little benefit.