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How bankruptcy affects Illinois consumers' ability to get credit

Bankruptcy can give an Illinois consumer that is struggling with his or her debt a fresh start financially that wouldn't otherwise be possible. However, what happens next may be unclear to some people. There is a question as to whether credit will be available to someone who has filed bankruptcy.

The simple answer is yes. Unfortunately, that isn't the whole story. Any credit obtained after a bankruptcy is discharged is going to cost more in interest and will be more difficult to obtain. Luckily, the more time that passes, the more credit will become available. This is due, in part, to how a bankruptcy affects your credit.

A bankruptcy reduces a consumer's credit score, but only for a while; credit can be rebuilt over time. A Chapter 7 bankruptcy, which is a total liquidation, remains on a consumer's credit for 10 years from the date it was filed. A Chapter 13 bankruptcy which is debt reorganization, however, will only remain on a consumer's credit for seven years from the date it was filed.

Illinois residents that file bankruptcy may find that the impact to their credit is well worth the opportunity to start over financially. The fact that obtaining credit after a bankruptcy can be difficult may be a blessing in disguise. After all, buying things on credit is what caused the financial struggles in the first place. A mortgage, auto loan and credit cards are all purchasing items on credit. If credit is difficult to obtain at first, it may help consumers revise their spending strategy and realign their priorities.

Source: Santa Barbara Independent, "How Bankruptcy Affects You as an Individual," Harley Hahn, May 19, 2013

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