How Will Bankruptcy Affect Your Credit
Filing bankruptcy is not the end of your credit, but a new beginning. In fact, bankruptcy eliminates much of your debt and gives you a “fresh-start”. The credit rebuilding process can truly begin following a bankruptcy, and all of your debts discharged in bankruptcy should be reported as having a zero balance.
The overall effect on your credit depends on how good, or bad, it was prior to the bankruptcy. Typically, most people who file for bankruptcy already have bad credit, or are at least heading in that direction. For these people, filing bankruptcy can actually benefit their credit in the long-term.
Filing Bankruptcy May Improve Your Ability to Obtain Credit in the Future
While filing a bankruptcy petition demonstrates to lenders that you had some financial problems in the past, it also shows that you took the initiative to repair these past debts to get your finances back on track. As a result, it’s likely that a large number of creditors will offer loans to you immediately after your bankruptcy is discharged. Initially, most loans for which you qualify are offered at a higher interest rate and lower credit limit, but over time and with a good payment record, you eventually receive better interest rates and qualify for additional types of loans. It is also much easier to maintain a good credit record after you have filed bankruptcy because you no longer have to juggle payments on debts discharged in your bankruptcy.
In some instances, lenders may even consider you as more “credit-worthy” after your bankruptcy is discharged since you most likely have more disposable income available to meet your monthly obligations and pay your bills. What’s more, creditors also know that you can’t file more than one Chapter 7 bankruptcy in an 8-year period, so any new loans you incur with them following a bankruptcy discharge must be repaid – they can’t be eliminated in a second bankruptcy for a substantial period of time.
No Government Discrimination
The bankruptcy code protects you from discrimination by the government on the basis that you have filed for bankruptcy. Things like government-guaranteed student loans are not granted based on your credit or income level, and the bankruptcy code prohibits the programs that provide those loans from discriminating against you simply because you have filed bankruptcy.