Myth #5: Filing Bankruptcy Will Destroy Your Credit For 10 Years


A common misconception about bankruptcy is that it completely destroys your credit for 10 years. This is simply not true.

Here, two completely different concepts are being confused with each other. The fact that bankruptcy is reported on your credit report for 10 years (7 years for Chapter 13) is getting mixed up with the effect that reporting will have on your credit. Just because something is reported on your credit report does NOT necessarily mean it will have a negative effect on your credit standing. In fact, many of my clients’ credit scores actually improve after they file!

Here’s why. By the time you need to make an appointment to see a bankruptcy attorney, your credit is usually pretty trashed, messed up and maxed out. This being the case, you have no credit for bankruptcy to hurt. As I usually tell clients, “You can’t wet a river.”

Even if you have excellent credit when you file, as some of my clients do, the longer that passes since the filing date, the less important the filing itself is to potential lenders. Of far more importance is “what have you done for me lately”–that is, what your recent post-bankruptcy income and credit shows about your ability to pay.

This is why, as I mentioned in Myth #4, in my experience, if you have not re-established good credit within two to four years after you receive your bankruptcy discharge, most likely it has nothing to do with the fact that you filed bankruptcy…and it certainly has absolutely nothing to do with the fact that your credit history still shows an old bankruptcy. Instead, it is likely to do with your experiences after you file for bankruptcy–missed payments on new debt or a post-bankruptcy payment default are the two biggest killers of post-bankruptcy credit.

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