1. Home
2. Bankruptcy Articles
3. Bankruptcy and Your Credit

Bankruptcy Articles

Thursday, November 13th, 2008

by Theodore Sliwinski, Esq.

Bankruptcy and Your Credit

Most of my clients have many questions about how bankruptcy affects their credit. In this world having decent credit is essential. If you are facing a foreclosure, repossession, a lawsuit, or if you simply too much credit card debt, then it is imperative that you at least consider filing for bankruptcy as a debt relief option. Many people throughout New Jersey have filed bankruptcy to obtain a fresh start. Your life would be much improved if you were not hounded any more by your creditors! Nonetheless, if you are considering filing for bankruptcy then you may have some serious concerns that  bankruptcy will ruin your credit report. This is a reasonable concern. Most people who file for bankruptcy already have terrible credit. Many of my clients are still apprehensive to file for bankruptcy even when it is their only way out of their financial catastrophe.

Every person has a different “boiling point” that determines when he needs to file for bankruptcy. It doesn’t make much sense to put of filing for bankruptcy in order to preserve bad credit that will still be reported for 7 to 10 years. A foreclosure, lawsuits, judgments, repossessions, and delinquent payments are all reported to the credit bureaus for 7 to 10 years. If you file for bankruptcy then it will also be reported for 7 to 10 years, but at least you will then have a fresh start. It may sound to be counter intuitive, but if you pay off charged off credit card, satisfy a judgment from a lawsuit, or repay all of your delinquent debts via a credit counseling program, then you may still find out that they still remain on your credit report, for almost the same amount of time as a bankruptcy does. The cold hard reality is that if you have delinquent debts because of a temporary setback in life such as a loss of employment, medical illness or any other reason, and if you pay them off once you make your comeback, then you still will have bad credit. It is extremely difficult to repair bad credit. Many consumer lenders will still blow you off if your credit report is marked up with charge offs, judgments, liens, and child support arrears. Moreover, if any lender would extend credit under those circumstances, then it would probably be with very high interest rates.

A fresh start in bankruptcy allows you to re-establish your scorched credit report. Aside from being reflected on your credit report, the bankruptcy laws do not restrict you from obtaining credit after the case is completed. Please keep in mind that whether you have good or bad credit it is  always a subjective issue. It is the perception of the prospective lender that matters. The decision lies in the eyes of a prospective creditor, and some lenders will extend credit to anyone for a high enough interest rates, whereas some lenders are extremely selective.

The major credit bureaus will report a chapter 7 filing for up to 10 years. They report chapter 13 filing for up to 7 years upon successful completion of the chapter 13 plan. If your chapter 13 case is dismissed before the completion of the repayment plan, then chapter 13 can also be reported for up to 10 years.

The bottom line is that filing for bankruptcy does not have to ruin your credit. A bankruptcy filing whether it is a chapter 7 or 13 is certainly not the end of the world. Moreover, it is not a death sentence to your credit rating. If you are like most New Jersey-ites  who are good candidates for bankruptcy then it is very probable that you already have bad credit. If you choose to file for bankruptcy, then it will appear on your credit report for 7 to 10 years after you file. However, it can’t be overemphasized that once your debts are discharged in a bankruptcy, then you will then have a clean slate . Thereafter, you can rebuild your credit report.

The fear of not having any credit in the future or the fear of not being able to re-establish credit after bankruptcy should not stop you from filing for bankruptcy. Stopping foreclosure, repossession, or a wage garnishment can help you and your family restore your peace of mind and obtain a fresh.

If you live in New Jersey and are considering filing for chapter 7 or 13 then contact the New Jersey Bankruptcy Center. We would like to help you face your debt and obtain a fresh start. Don’t lose everything!