The question “Will my credit be ruined forever?” comes up at almost every initial client consultation and the answer is “No.” Yes, a bankruptcy case stays on your credit report for up to ten years. But once you file bankruptcy and receive your discharge, your debt-to-income ratio is greatly reduced. This means that your total outstanding debt as compared to your income decreases. As a result of the discharge, you are no longer legally liable for that debt (barring some exceptions under bankruptcy law), so that means your debt as reported on your credit report after the bankruptcy discharge, essentially goes down to zero. And this means that your credit rating will gradually start to improve even if the bankruptcy filing is still on your credit report.
Even though your credit score will gradually improve, it is important to remember that you are likely to be considered a “subprime borrower” and will likely pay higher interest rates to borrow money for a house, vehicle or obtain a new credit card. Post bankruptcy filing, you are still a credit risk. But creditors are actually MORE likely to extend new credit after you file a Chapter 7 as you are not eligible to file another Chapter 7 for eight years. Creditors see this as less of a risk in extending new credit. If you file a Chapter 13, it may take a while longer for you to see the benefits because you will have to be in a repayment plan between thirty-six and sixty months but it will happen. Pointing out to a new potential creditor that you learned to live within your budget, paid back a portion of your old debt to your creditors and completed a Chapter 13 will make you a better credit risk upon completion of your Chapter 13 repayment plan. A bankruptcy discharge means that a new creditor is not competing with your old creditors for repayment of debt.
Establishing credit after bankruptcy can take between 18-24 months and debtors should start with small accounts and avoid predatory lenders like payday loans and really high interest rate credit cards. But it is possible to improve your credit score after bankruptcy and get that fresh start for you and your family.
If you believe that you are ready to take control of your debt and work on improving your credit, contact the office today for a free consultation.
If you believe that you are ready to take control of your debt and work on improving your credit, contact us online or Call us today for a free consultation. For your convenience, we answer our phones 24 hours a day, 7 days a week. We will meet with you evenings or weekends upon request. Remember, your choice in attorney matters.