Will Bankruptcy Ruin My Credit?
Keeping your credit in tact after bankruptcy is an important consideration. In many of the cases that I come across at my bankruptcy law firm in Sacramento, my clients already have bad credit before they file bankruptcy. Usually, they have missed several payments on their credit cards and mortgage loans. In addition, their credit reports are filled with a large number of accounts, often with large balances. The bottom line is that if you are considering bankruptcy, your credit is probably in need of a tune up. The real question that I focus on is, how to improve your credit?
Bankruptcy Eliminates Most Debts
The fact is that credit card companies have designed their borrowing process in such a way that most people can never afford to pay off their debts. With high interest rates, late fees, and incentives to spend more and more, its no wonder why your credit card debt grows so quickly. Once you have accumulated a maximum limit credit card debt, most of you can only afford to make the minimum monthly payments. This is the biggest obstacle to maintaining a high credit rating.
While filing bankruptcy certainly is a negative item to have on your credit report, it may actually strengthen your credit rating in the long run. Why? Because, clearing away massive amounts of credit card debt, and other delinquent debt raises the likelihood that you can repay new debts. Unfortunately, you won't begin to reap the benefits of your newly cleared balance sheet for a few years. Most banks will not approve a loan to someone who has filed bankruptcy in the last two years. However, ask yourself this: would a bank approve you for a loan based on your current credit status? In other words, how bad is your credit without filing bankruptcy?
The impact of bankruptcy on your credit lessens over time. So while the filing may remain on your credit report for up to ten years, its often possible to obtain new credit cards and loans within just a few years after filing bankruptcy.
On the other hand, for those of you with a strong credit rating now, think seriously before filing bankruptcy. Your credit after bankruptcy will prevent you from obtaining new loans for several years and when you do, you won't be getting the strong credit type of interest rates that you once did. So for some with strong credit and an ability to repay their debts, avoiding bankruptcy might be the best solution.
