Will filing bankruptcy ruin my credit for seven years?
I heard this again from a bankruptcy client this week.
The only seven year debt forgiveness reference I can find is in the Old Testament:
“Every seven years you shall forgive them their debts.”
Bankruptcy has to be removed from your credit report after ten years.
You cannot file another Chapter 7 bankruptcy for eight years.
It used to be six years required between filing Chapter 7 bankruptcy cases, but Congress changed that in 2005.
So, it could be changed again, though nothing is in the works now.
It isn’t bankruptcy that ruins credit
So, does filing bankruptcy mean that your credit is ruined?
What is your credit standing when you call a bankruptcy attorney?
Good credit is paying all your bills when due. Not many folks call me in that situation.
Some do. They call me the day they get the layoff notice, when they know they won’t be able to pay the bills next month.
More common is the person who calls after the car is repossessed, after multiple creditors have sued, or after the bank account or paycheck has already been garnished.
Now, if you cannot pay the creditors you already have, who is standing in line to lend you more money?
Your credit rating is essentially zero, in that probably no one will lend you money.
Ergo, it cannot go down, or be ruined, from there.
Bankruptcy improves credit
Creditors want to know one thing.
If they lend you money, will you pay them back? Or, maybe, stick them by filing bankruptcy?
That is what a creditor wants to know, and what your credit score allegedly reflects.
Now, if you have existing debts – $10,000, $100,000,$500,000, whatever – that you cannot pay, and, you wipe that out with a Chapter 7 bankruptcy discharge, you become a BETTER credit risk than if you still owed that money.
And, creditors know you cannot file Chapter 7 again for 8 years, which is a long time for them to collect from you, even on a five or six year car note.
Building better credit
Rebuilding credit after bankruptcy is simple: pay your bills on time.
Filing bankruptcy is NOT what ruins your credit; not paying back bills on time ruins credit, whether you file bankruptcy or not.
Kurt O’Keefe, Esq. is a Michigan student loan and bankruptcy attorney, certified in Consumer Bankruptcy by the American Board of Certification, also handles student loans. Michigan State Chair for the National Association of Consumer Bankruptcy Attorneys, over 170 members, Martindale-Hubble av rated (highest rating), lecturer for National Business Institute and NACBA in Michigan, Illinois, California, Ohio and Louisiana. He writes at StopCreditor.com.
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