Life After Bankruptcy

Won’t Bankruptcy Ruin my credit for ten years?

It is true that bankruptcy filings will be reported on your credit report for ten years.  However, that is not the terrible monster people fear it is.

In fact, for most people, bankruptcy actually starts your credit score improving faster than if you do not file.

The effect of the bankruptcy notation on your credit report becomes less and less important as each year passes.  Credit reporting agencies each use a scoring method to report your credit score.  Although the scoring methods are kept secret, some things about the score are well known, and current account histories weigh higher in the score calculation than old defaults. After bankruptcy, once the huge bills are gone, your credit score improves because you can finally begin pay your bills on time. Most people actually achieve a higher credit score in the years immediately following their bankruptcy because their debt/income ratio has gone down, and are showing current payment history. On the other hand, people who try to dig out of that hole by themselves rarely have a better credit score in three years.

Bankruptcy will actually help you start rebuilding your credit sooner than if you don’t file. You will probably be able to obtain a “secured” credit card immediately after filing – a bank that gives you a credit card with a dollar limit equal to whatever you deposit in a savings account there. High-interest offers from regular credit cards will follow. With no other unsecured debt to repay, you actually look attractive to these companies. Car loans and even home mortgages are often available after about two years. Of course, there is a downside to filing Bankruptcy. You can expect to pay a higher interest rate on credit purchases, and it will be a while before you get offers for great rates again. However, with good credit practices after your bankruptcy, people have been able to qualify for a home mortgage or refinance after about two years.

For many people, their credit cards are “maxed out,” and they are facing wage attachments, repossessions, lawsuits and harassing phone calls and letters from debt collection agencies.  Let’s face it, for them, there is no place but up.  Bankruptcy can only improve that situation.

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