First of all, bankruptcy is for people who are finding hard to make their credit payments.  In bankruptcy jargon, this is “hardship,” without which you do not qualify to file. So, for those people who have a hardship, their credit is already affected – or is about to become affected.  Late payments, bad payments, missed payments, and maxed out credit cards begin to inundate the credit report - the more there is of that, the less likely that person will get a loan of any kind. Therefore, the credit worthiness of that individual (or couple) is no longer stable, which has a huge impact on credit.

Under the bankruptcy codes of the federal government, a discharge of debts also has the effect of completely erasing the payment history. That means that when creditors pull your credit history they do not see months (or even years) of bad payment history. No late payments. No bad payments (lower than the minimum due). No missed payments. They do not even see your old creditors. It is all gone. 

Now, under the same bankruptcy codes, the bankruptcy will likely stay on your credit report for 10 years. It can stay on for longer, but only under very limited situations (getting credit for a loan larger than $150,000, or when being considered for employment with a salary of $75,000 or more), and even then it is not mandatory.

The best part is that as soon as you get your discharge of creditors, you can begin to rebuild your credit. You can do this by using a credit card that survived your bankruptcy because it had no balance, or by establishing a small credit line with a bank or credit card company. Yes, your credit is a little scarred from the bankruptcy, but you are a prime borrower because you are locked in for at least 8 years; you cannot file bankruptcy for another 8 years, so the creditors figure you have no way to get rid of the debt other than by paying them off. 

Now, keep in mind, you will not get $10,000 of credit right away. You will likely get a $500 credit card with a $500 cash deposit (giving them some security for the debt), and that will be within months of filing! 

Once you get this kind of card, you can begin the rebuilding process. More and more offers will come in through time, and within the first year you can get a car loan, and at about two years you can qualify for certain home loans. And to tell the truth, if you were to pay off your debts right now, the time lines would not be much different; that is because they like to see long periods of good payments, which bankrutpcy can provide. Immediately after bankruptcy, you can start to show the creditors that you have learned your lesson, that you know how to manage your money, and that the bankruptcy was a fresh start on a new life.

And that is what we offer in our offices; we produce new beginnings for consumers who need a second chance. We understand what you are going through, and what you will be going through.


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Chapter 7 Blog

This is a collection of articles for your consideration when deciding whether bankruptcy is right for you.

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March 2010

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