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Will Bankruptcy Ruin My Credit?

Norma Duenas

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will bankruptcy ruin my creditThe greatest myth being perpetuated by credit card companies and creditors is that bankruptcy will ruin your credit. Creditors have managed to create a myth that has stopped millions of families and individuals from seeking relief under the bankruptcy laws. The reality of what will happen to your credit is very different then what is being perpetuated in the media. Bankruptcy will not ruin your credit but is a tool that can help you move forward in reestablishing your credit when you can no longer afford to pay your current creditors.


If you are considering filing for bankruptcy, the chances are that you have already defaulted on many of your payments with creditors or are about to. As a result your credit score has been impacted through reports of late payments or will soon be impacted. In this situation filing for bankruptcy can help you quickly move forward with rebuilding your credit. When you file for bankruptcy protection creditors :

  • Cannot continue to report any future late payments on your credit report
  • Cannot report an outstanding balance on your credit report.

Creditors must seize reporting any information on accounts that were included in your bankruptcy case and discharged. The accounts included in bankruptcy should be listed with a zero balance and state they were included in bankruptcy. This will give you the opportunity to start fresh and rebuild your credit score. Any new credit that is obtained after the filing of your bankruptcy case can be used to reestablish your credit.

When you file for bankruptcy, you have the opportunity to start rebuilding your credit with no balances being reported on your credit report. Approximately 30% of credit score is based on the amount of debt that you carry on your credit report. When you file for bankruptcy protection the accounts that are discharged become $0 balances that no longer negatively impact your credit score in this area. In fact this portion of your credit score is positively impacted through the elimination of debt on your credit report.

The presumption that your credit will be ruined for 10 years is completely incorrect. How quickly your credit score recovers after filing for bankruptcy really depends on the actions you take to rebuild your credit after filing for bankruptcy. You need approximately 24 months of positive payment history to help your credit score since the credit scoring models focusing on this period of payment history.


The impression that is created is that people who file for bankruptcy will no longer be able to purchase a home, car, or apply for credit cards. This could not be further from the reality of what happens when you file for bankruptcy. In fact many credit card companies cater to individuals who have filed for bankruptcy because they are a good credit risk. When you file for bankruptcy you have no or minimal debt owed and therefore are a better credit risk then when you were carrying debt.

Your ability to purchase a home or car after filing for bankruptcy is not based simply on the fact that you have filed for bankruptcy alone but on a number of factors including income verification, credit worthiness, and downpayment. Most mortgage companies recommend that you wait at least 2 years from your bankruptcy filing to apply for a mortgage loan. For vehicle loans you may be able to obtain one right away depending on your income and credit worthiness.

In fact you are less likely to receive a credit card, auto loan or home loan approval if you carry a high amount of debt and there is insufficient income to show that you can cover these payments plus the new loan. When you have eliminated these debts in bankruptcy then your income can be focused on examining whether you can afford to make the payments on your new loan.

Filing for bankruptcy can help eliminate your financial burden and give you a new financial beginning. Talk to a local bankruptcy attorney about your situation and how bankruptcy can help you rebuild your financial future.

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