Wynn at Law, LLC, assures clients that a bankruptcy filing isn’t an ending, it’s a beginning and the beginning, while sometimes a little rocky, starts right after a judge discharges your bankruptcy.
A Chapter 7 bankruptcy filing stays on a FICO record (aka ‘credit score’) for 10 years from the date you file your bankruptcy. It’s seven years from the date of filing for a completed Chapter 13. Either may sound like a very long time. But first and foremost, it beats the bind that led to the filing. The creditor calls (see related article on the Automatic Stay) are a thing of the past. The stack of bills next to your checkbook might be considerably shorter and probably better matches your paycheck.
Credit scores react first
A bankruptcy filing is serious business and should be given serious thought prior to filing. That being said, it does have some potential bright spots as a new beginning.
Hidden among the bad news that your credit score likely will go down upon filing bankruptcy is the fact that your score probably was in bad shape before the filing anyway. And heading for worse. Another silver lining is that many of your debts are gone; therefore, the bankruptcy will make your debt to income ratio much better. In both Chapter 7 and Chapter 13, delinquent accounts before filing remain on your credit report. In Chapter 7 cases, they will stay on the report for seven years. Chapter 13 debts are often paid off according to the bankruptcy payment schedule in three to five years. Since these debts are repaid all or in part, the records will be removed from your credit report sooner than Chapter 7 debts, which aren’t repaid at all.
You can get credit again
It isn’t going to happen overnight, but you will have an opportunity to rebuild credit. More, shall we say ‘aggressive,’ lenders swoop in first with high interest credit card and auto loan offerings right after filing. Resist the temptation, if possible. As you rebuild a steady track record of paying on-time things like mortgage payments, car payments, and student loan payments, better chances to rebuild credit will come. Usually a secured credit card opportunity is going to come your way first.
Once you establish a good payment record and are living within your means, lenders will see you as a decent risk. Why? They know you can’t file another Chapter 7 bankruptcy again for eight years after your previous Chapter 7 filing.
You know your pitfalls
The best outcome in a bankruptcy filing is that you’ve learned from and implemented corrections to previous money errors or have been able to put a horrible life event behind you like a medical emergency or car repossession. You’ll know the consequences of paying late, for example. You also learn to budget. And stick to it.