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How will bankruptcy affect my credit rating?


Chapter 7 bankruptcy filing remains on your credit report for 10 years, and Chapter 13 remains for 7 years. You may start qualifying for loans such as a car loan as early as one year after filing bankruptcy if you meet the income requirements. However, the lender will likely charge you higher than normal interest rates. It may take five to seven years before you are offered normal interest rates again.


Though bankruptcy puts a bad mark on one's credit rating, the overall effect of it can be less harmful than a record of debts and/or judgments that cannot be paid. Many individuals discharged in bankruptcy obtain (or are offered in the mail) new credit cards shortly after discharge. A person has no debt after bankruptcy and may not file again for another six years. 11 U.S.C.A.727. From the point of view of many prospective lenders, a recently discharged debtor is a better credit risk than one mired in debt.


Assume a person with debts totaling $25,000.00 immediately prior to filing Chapter 7. Many of these debts may be in collection. Lawsuits may have been filed, and there may even be judgments outstanding, with wages already garnished or about to be garnished. This individual will not easily obtain credit. On the other hand, the recently discharged individual is debt free and may not, for at least six years, file for bankruptcy again.


Of course, there are no guarantees that prospective creditors such as banks, landlords, or mortgage lenders will not frown upon a bankruptcy. Whether this will count more, however, than a debt-ridden credit report is hard to say. And though recently discharged debtors may be offered new credit cards, it is in their best interests to decline or at least limit the acceptance of such offers so as to avoid the recurrence of financial overload.


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