Bankruptcy

Life and Credit after Bankruptcy

By Chris Kramer

One of the most enduring myths about filing for bankruptcy is that it "ruins your credit" for ten years. While many myths about bankruptcy are misleading, this is one that needs to be debunked, once and for all.

A recent article from the New York Daily News examines the question of exactly what happens to a person's credit after a bankruptcy filing. In it, bankruptcy attorney and President of Total Bankruptcy Kevin Chern explains why filing for bankruptcy does not mean permanently sabotaging your finances.

Bankruptcy and Your Credit

Here are some key points to keep in mind about how filing for bankruptcy will affect your credit:

• Your credit before bankruptcy: Most people who need bankruptcy protection don?t have great credit to begin with?their debt-to-credit ratios tend to be high, and that?s a key risk indicator to many potential lenders. In fact, the financial difficulties that lead people to bankruptcy filings are incredibly detrimental to credit ratings.
• Your credit after bankruptcy: When you receive your bankruptcy discharge, your discharged debts should be removed from your credit history, meaning they no longer hold you down. True, evidence of your bankruptcy filing stays on your credit report for 10 years, but its impact diminishes with time (a single bankruptcy filing should not "ruin" your credit for a decade).
• Overall credit health matters: Credit reports work because they combine various financial indicators to provide potential lenders with a snapshot of someone?s financial life. Someone who has filed for bankruptcy and stayed ahead of her debts since then will likely seem more attractive than someone who has not filed for bankruptcy but has delinquencies and defaults sullying his credit.

Getting Loans Again

The Daily News notes that most personal bankruptcy filers can expect to start getting credit card solicitations in the mail within two years of filing for bankruptcy?in other words, credit becomes available far before the ten-year doomsday benchmark commonly repeated.

But remember: it may be best to wait a while after a bankruptcy filing before applying for credit cards again, because the first offers may come with very unattractive interest rates or fee schedules.

For a more in-depth exploration of improving credit after filing for personal bankruptcy, check out these credit-rebuilding tips and this four-step method for regaining financial stability in your post-bankruptcy life.

Full post as published by The Bankruptcy Blog on April 09, 2010 (boomark / email).