Bankruptcy & Your Credit Rating.

What about my Credit Rating?

A bankruptcy filing is noted by various credit reporting companies. Federal law limits the length of time that this information may be carried on a report to ten (10) years. A bankruptcy shown on a credit report will adversely effect one’s credit. However, many of our clients have found that after filing bankruptcy, they can reestablish their credit over a reasonable period of time by promptly making the payments that they reaffirm, such as their car loans, house mortgage. Many of our clients have found that they can improve their credit score into the high 600s in two years and to above 700 within three years of completing their bankruptcy.

Our attorneys and staff will provide you information on how to reestablish credit by informing you:

  • when to check your credit report;
  • how to insure that the credit report only has information that it should have on it;
  • how to correct incorrect information on the credit report by letter or by internet;
  • How to obtain the right type of loans to reestablish credit;
  • which types of loans can actually hurt your credit score and why to avoid those types of loans.

This and most of your other questions about bankruptcy can be answered in an appointment with us at no charge.  Most of our first appointments take at least an hour because we want to make sure that you have a good understanding of the entire process to help you make the right decision for you.  For example, we explain why loans with finance companies that normally charge high rates do not help your credit the same way that a loan from a bank will help.   Thus, we cover how to make loans from banks after bankruptcy so you can build your credit score as quickly as possible.

How difficult is it to improve my credit rating if I elect not to file bankruptcy?

The answer to this question depends upon how quickly you can bring all of your loans and accounts current.  If you can do that quickly and bring your balances down on your credit card debt, then you can raise your score rather quickly.  However, if your credit card balances remain close to your credit limit and if you continue to pay your debts late, then your credit score will probably continue to fall.

Can I borrow money to buy a car or house after my bankruptcy case is completed?

Many clients come into our office with the belief that if they file bankruptcy, then they cannot obtain any credit for seven (7) years.  Actually, your ability to obtain credit at any time is normally based upon three (3) factors.  Those factors are:

  • 1) your ability to repay the loan,
  • 2) the creditor’s collateral position, and
  • 3) your credit history or credit score.

If you have filed a bankruptcy, then your credit score is not going to be high immediately.  However, as stated above there are things you can do recover as quickly as possible.  Thus, filing a bankruptcy does not mean that you cannot obtain credit at all even immediately after completion of the case.  Individuals that show the creditor that they now have the ability to repay a loan can in many cases obtain the credit necessary to purchase a car, but the longer one waits after bankruptcy, provided the borrower is taking the proper actions re-establishing credit, the lower the interest rate will be.

FHA and VA regulations provide that a person or persons can borrow funds to purchase a home provided that the discharge completing the bankruptcy occurred at least two years prior to approval of the loan and the borrower(s) meet the remaining necessary guidelines to borrow the funds to purchase a home.


  1. Jennifer
    Posted June 24, 2014 at 10:16 am | Permalink

    I am able to make my house payments, credit card payments, bills and one car payment that will be paid off in 7 months however, I have two leases that I am stuck with after a breakup that I am voluntarily repossessing due to a financial hardship. The companies have informed me that they will auction off the leases and sue me for the remaining amount. Chapter 7 appears to be the best chapter for me to file, but I would like some of your feedback on what steps I should take for this bankruptcy.

  2. robert
    Posted July 1, 2014 at 5:59 am | Permalink

    Most of my clients with a situation similar to yours choose to file a chapter 7 case, provided they qualify for a chapter 7 based upon their monthly income and monthly living expenses. The primary reason to file the chapter 7 case is because the person can start rebuilding his/her credit after the discharge which is normally granted in less than 5 months after the filing date. By reaffirming the house mortgage and car loan and making those payments timely, a person can rebuild his/her credit in a reasonable period of time.

    Many times my clients will ask to leave the credit card debts off of the bankruptcy schedules because they want to keep the option of using those cards in the future. There are two problems with that request. First the bankruptcy code requires that a person filing bankruptcy disclose all debts and assets. Second, even if the credit cards are not listed in the bankruptcy schedules because the card has no outstanding balance, most if not all credit card banks receive a computer download from one of the credit bureaus or from another company that provides this service once each week. That download will contain all bankruptcy cases that have been filed in the previous week. Thus, even if you do not have to list a credit card because there is no money owed on the card, the card will probably cancelled.

    After receipt of a discharge, there are two ways to obtain new credit cards. First, a person generally will be approved by some companies for low limit credit cards, generally around $300.00. Second, many companies offer secured credit cards. An internet search will reveal which companies will issue secured credit cards. Remember, that it is important not to max out any credit cards, because the amount of credit used in comparison with the credit limit will bring down a person’s credit score.

    In some cases, my clients’ interest rate on their car loan is so high or they are upside down on a car loan and they have owned the car long enough to pay the value in a chapter 13 plan, my clients choose a chapter 13 case instead. In some cases, we have saved our clients more than $10,000.00 in interest by filing a chapter 13 and paying a much lower interest rate. In others, we have been able to propose plans that pay the value of the car which is substantially lower than the payoff on the car loan. Many of these clients have been been able to file the chapter 13, pay substantially less to keep their car and discharge their unsecured debt even though the pay nothing to the unsecured creditors in the chapter 13 plan. There are a lot of factors that come into play including our clients’ income, expenses and equity in non-exempt assets.

    You should contact an attorney in your state or area to review the above issues and other issues to be able to make a decision on filing a chapter 7 or chapter 13 bankruptcy case.

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