When people come to me to file bankruptcy, they often state that they are seeking a “fresh start.” Bankruptcy does indeed provide the fresh start that many people so desperately need, in more ways than one. Not only does the bankruptcy give people relief from their debts, it helps them to reestablish their credit. When I mention this to my clients during the consultation I often see a quizzical look.
Many people believe that bankruptcy is going to ruin their credit. In most cases, by the time someone comes to me for bankruptcy, their credit score is already low because they have stopped making payments on their debt.
So how can bankruptcy help you to reestablish credit? After you file bankruptcy, the creditors can no longer report on the discharged debt to the credit reporting agencies. Because you have no more delinquent debt on which your creditors can report to the credit reporting agencies, you are in a good position to boost your credit score.
Upon the filing of their bankruptcy, most people receive solicitations from places that are willing to lend them money. It is common to receive letters for car financing immediately after the bankruptcy is filed. Many people also obtain “secured” credit cards whereby they give money to the lender and a line of credit is established. They then charge on the card and repay the money on a regular basis. Over a relatively short period of time, the credit score can go back up by making regular on-time payments.
Although bankruptcy will remain on a person’s credit report for 10 years in the case of a Chapter 7 bankruptcy, what’s most important in the eyes of the creditor is the person’s credit score. The fact that a person has filed bankruptcy is not as important. In fact, many people find that they are in a position to qualify for home financing only 2 years after their discharge. This is because their credit score has gone back up. The bankruptcy has truly given them the Fresh Start that they deserve!