Credit rating is very important in our society. It determines how much money you can borrow to buy a car, a home or how much you can charge on credit cards. A strong credit rating gets you the best credit with the lowest interest rates because creditors see you as a good risk. Many people avoid filing bankruptcy because they fear the effects it will have on their credit rating.
Kelly Law Office does not do credit repair work. From our perspective, those who claim to be able to repair credit appear to be making very questionable claims. In the course of doing bankruptcy work, however, we get a lot of feedback from clients as to how the bankruptcy has affected their credit and their lives in general. The overwhelming majority of the feedback is positive.
Just how a bankruptcy will impact your credit rating if you file a Chapter 7 bankruptcy or a Chapter 13 debt reorganization plan depends primarily on what your credit rating looks like when you make the filing. If your credit is very good, a bankruptcy of any kind will have a serious negative impact on your credit rating. As a practical matter you will not have credit for several years. What we hear is that the credit bureaus keep the bankruptcy filing on the credit report for ten years. However, usually after three or four years, based on what we have been hearing from our clients, credit will start to improve. Typically in any given year, Dave Kelly will regularly get phone calls from clients who filed three or four years earlier asking for copies of documents from their bankruptcy files. Why are they asking for the info? Because they want to use it as part of a credit application. They have a banker or a lender who is about to give them a car loan or extend some other sort of credit. Caution is recommended once credit is available again. We would rather not see folks again for another bankruptcy years later.
If, however, your financial difficulties have been mounting for some time and your credit rating is already significantly damaged or will be in the near future, filing for bankruptcy might be the best move you can make. It may, in fact, help you improve your credit.
Once you have completed the bankruptcy process, you are essentially debt free. While you have a bad credit score, you now have the ability to repay any new creditors. This makes you a better risk than when you were carrying all the debt. You may be penalized for bankruptcy and poor credit with higher interest rates but it is an opportunity to start rebuilding your credit. Under Chapter 7 protection, you can only file once every eight years. This gives you plenty of time to rebuild your credit once you are debt free.
If it has been less than eight years since you filed a Chapter 7 bankruptcy, you can still file a Chapter 13 bankruptcy, providing you are meeting the pre-established percentages for the debt you must repay. There are time limits on getting at a discharge under Chapter 13 as well, but usually by the time the payment plan is completed in the Chapter 13, the time limit would have expired and the debtor would be eligible for the discharge.