A common question among clients is the effect chapter 7 bankruptcy will have on a client’s credit. While bankruptcy will effectively wipe away any credit of a client, a debtor will still be able to quickly and effectively rebuild their credit and obtain favorable rates.
First, Chapter 7 bankruptcy can be reported on your credit report for up to 10 years. Thus, any credit check that is run for 10 years following bankruptcy will likely reflect that you filed bankruptcy. Further, nearly all credit accounts held by the debtor will be cancelled following filing Chapter 7. Even those accounts that a debtor may wish to keep will be canceled. Despite this relatively bleak period following bankruptcy, there is hope around the corder.
Many creditors will start to make credit offers to debtors emerging from bankruptcy. Creditors recognize that these debtors are relatively safe as the debtor will have low level of debts and will not be able to cancel the debt by using bankruptcy (current bankruptcy law requires 8 years between filings). Further, debtors will be able to repair and improve their bankruptcy by obtaining and using secured credit cards. Secured credit cards require a deposit to use and have only small credit limits. However, they are a great way to rebuild credit as debtors use and repay debt on the account. As you continue to do this, many credit opportunities will be restored. In fact, a debtor may be eligible to purchase a home under FHA guidelines in as a quick as 2-4 years following bankruptcy.
While filing for chapter 7 bankruptcy will damage your ability to obtain credit for the short future, many debtors are surprised at how quickly they can repair their credit. There are many reasons to file for bankruptcy. Check out our article on 8 reasons To File for Bankruptcy.
This post was written by Benjamin Yrungaray
Benjamin Yrungaray handles bankruptcy and loan modification cases at First Source Law. He is a member of the state bars of California (#256224), Pennsylvania (#208558), and New Jersey. He is also admitted in the Central District Court of California, Southern District of California, and New Jersey District Court.
