Bankruptcy And Future Credit Scores

A very common question is how long does bankruptcy negatively impact your credit rating. Most people believe that bankruptcy ruins your credit for seven years. This belief is based on the fact that the bankruptcy filing will be on your credit report of up to seven years. People considering bankruptcy think that it will be seven years or more before they can qualify for a new car or mortgage

Actually, the effect of bankruptcy on your credit is much shorter. Many of my former bankruptcy clients have worked for either banks, automobile finance companies, or mortgage brokers. These people evaluate credit for a living. For the most part, these clients tell me that their lending guidelines provide that a bankruptcy more than two years old will not disqualify prospective borrowers. If the former bankruptcy debtor has established reasonably good credit history after getting his bankruptcy discharge, most lender employees told me that the borrower will have a fairly normal credit score. Last week, a wife of one of my former bankruptcy clients consulted with me about herself filing bankruptcy. She said that her husband had established excellent credit within one year of his bankruptcy being completed.

Most people don’t realize that as soon as you file bankruptcy many banks will send you offers for new credit cards. Although the interest rate initially will be higher than normal, people in the middle of a bankruptcy still have the convenience of using credit cards. Bankruptcy is actually a credit-helper; after filing bankruptcy all debts and judgments are cleared away and your income ratios immediately improve. As long as you establish good credit habits after filing, your should see improved credit in a relatively short time after your bankruptcy.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida