One of the most common questions I hear from potential bankruptcy clients is, “How will filing bankruptcy affect my credit?” The answer varies from person to person. Bankruptcy will lower a credit score, however many people considering bankruptcy already have a low credit score, so a bankruptcy filing will not lower their score much further. Individuals (or couples) with a lot of debt also tend to have trouble getting credit or new loans even without bankruptcy. Thus, the credit impact on many bankruptcy debtors is not always significant.
Another issue is whether a potential debtor is planning to buy any large items (houses, cars) or seek new credit or loans sometime in the near future. After 10 years, the bankruptcy is removed from the credit report, and if a debtor does not damage his/her credit in other ways during the 10 years, their credit score can eventually go way up. During the 10 years immediately after a bankruptcy filing, the debtor’s credit score can be improved gradually by making payments on existing loans, any remaining credit cards, or new secured credit cards the debtor may obtain after the bankruptcy concludes.
Ultimately, the affect of a bankruptcy on credit depends on the lender. Since lenders all have their own preferences and view credit reports in their own way, how one’s credit will be viewed is not always predictable, with or without a bankruptcy filing. Some lenders, for example, actually like to see a bankruptcy discharge on a report, which tells them that there are no other debts competing for your dollars, and they know that you cannot file another case for eight years (if the first discharge was in Chapter 7). Other lenders may stress factors such as employment, the size of a down payment, or possible co-signers, when deciding whether to approve credit or loans.
Many bankruptcy debtors find that they have an easier time obtaining credit or loans a few years after they file bankruptcy than they did before filing due to some of the reasons discussed above. It is often wise to discuss your financial situation with an attorney prior to filing bankruptcy to make sure it is the best solution for your situation.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.