If I had a nickel for every time a person asked my how long their credit
will be ruined because they filed bankruptcy, I would have a truckload
of nickels. The notion that bankruptcy ruins credit ratings is probably
one of the biggest myths in American folklore. Every client that I have
ever represented was overextended on credit, had multiple delinquent debts,
judgments, or was about to fall into one of these categories. Delinquent
debt and judgments are like wrecking balls. You may be making your mortgage
or car payment on time every month. That wrecking ball is still going
to crash into your credit rating and destroy whatever momentum you have
from that positive activity. Balances change because of interest or penalties
and the next month the negative reports hit again.
When a bankruptcy is filed and completed, the cycle of destruction to
your credit stops. Yes, a bankruptcy is a blemish on any credit report,
but unlike delinquent debt, it does not re-report every month. The prior
debt that has been discharged (erased) in bankruptcy must be marked as
such and the balances are deleted. The recurring damage is stopped.
The most important thing to do following a bankruptcy is to avoid any
new damage to your credit rating. Simply making payments on time to any
creditors that report to the credit bureaus (most major banks and finance
companies) is the single most important step to rebuilding good credit.
I also recommend checking your credit approximately 70 days after your
bankruptcy case is closed. Make sure that all debts that were discharged
in your case have either been deleted or have no balances showing and
have been marked “discharged in bankruptcy.”
Beyond these simple steps, the old saying that “time heals all wounds”
is true of credit ratings as well. Most of my clients have returned to
a good credit rating within two to three years after the closing of their
cases. There is no doubt that most people are a much better credit risk
after a bankruptcy than they were before they filed. It makes sense. The
mountain of delinquent debt that had them financially paralyzed before
has been wiped away. Creditors considering loaning money are no longer
faced with the prospect of being at the end of a long line of creditors
when they ask for payment. There is an eight year bar to filing a chapter
7 bankruptcy following the filing of the first case, so creditors also
need not worry about losses from another bankruptcy filing. Banks make
money by lending money. They want you back in the game. Life after bankruptcy
is, therefore, much brighter than most people imagine.
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