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Does bankruptcy ruin your credit for ten years?

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One of the common myths surrounding bankruptcy is that filing bankruptcy ruins your credit for ten years. Although a Chapter 7 can remain on your credit report for up to ten years from the date of filing (a Chapter 13 bankruptcy, which is much more common these days, can stay on your credit report for up to only seven years from the date of filing), this does not mean your credit is ruined for that entire time. In fact, bankruptcy is often the solution to rebuilding your credit score. Most of the people that come into our office for a free consultation do so with their credit already in trouble.  Many of these people have debt they have not been paying or have too much debt resulting in very high debt-to-income ratios.  Both of those situations can destroy your good credit rating.  Many people in this situation choose to do nothing about it hoping it will just go away on its own. But it never does.  Ultimately they get served with lawsuits that lead to wage garnishments, liens on property, and/or bank levies, further ruining their credit.  In these instances, a bankruptcy can be the first step in repairing their credit because it eliminates the debt and provides a fresh start, free from the collection efforts and harassment by creditors.  

This does not mean that post-bankruptcy lenders will totally ignore the fact that you have filed bankruptcy.  However, most lenders realize that you are probably a better credit risk after you file bankruptcy than before. Why is this? Because after bankruptcy, the law prevents you from filing Chapter 7 bankruptcy again for eight years and after bankruptcy you have no other debt to pay.  In fact, it is not uncommon for some (but not all) credit card companies to allow you to keep your card if your bankruptcy does not cause them loss.  Most of our clients generally qualify for a home loan on the same terms as anyone else two years after their bankruptcy discharge and if you have regular employment income and are up-front with a potential landlord, you should not have any trouble leasing an apartment following bankruptcy.  Furthermore, our clients have been very successful when looking to purchase a vehicle as little as one month after filing their bankruptcy case. 

So if you are contemplating bankruptcy, but are worried about the effect it will have on your credit, remember you first have to resolve your current debt issues before you can rebuild your credit and your future.  Filing for bankruptcy is often the first step to accomplishing that goal.  

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