Is My Credit Ruined FOREVER?

Unless you are being romantic, the word “forever” is so…final. So one of the most asked questions about filing bankruptcy is “Will my credit be ruined forever?” and the answer is “No.” Yes, a bankruptcy case stay 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.

Now, it’s not all hearts and flowers. You will now be considered a “subprime borrower” and will likely pay higher interest rates. It is likely, however, that you are already in credit trouble if you are reading this article. Post bankruptcy filing, you are still a credit risk. But if you file a Chapter 7, you are not eligible to file another Chapter 7 for eight years so 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 less likely to stand out as a credit risk post bankruptcy. A bankruptcy discharge also means that a new creditor is not competing with your old creditors for payment.

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, please call our office today at 800-234-9524 or use the online contact form to schedule a free consultation.