What will bankruptcy do to my credit? This is probably the question most often asked by our clients and potential clients when they are considering bankruptcy. While each client will have a different experience based on their individual circumstances, the question to the answer remains the same. It is absolutely possible to rebuild your credit after filing for bankruptcy.
Bankruptcy is an option available to consumers and businesses to help them recover. It is not an end of the world scenario or a fork in the road as to whether or not they will ever be able to get credit in the future. Filing for bankruptcy will cause your credit score to drop considerably at the time of filing. However, it is possible and common to be able to rebuild your credit score within two or three years after a bankruptcy. While the bankruptcy remains on your credit report for ten years, it will not prevent you from being able to get credit. In fact, the best way to rebuild your credit is to use credit again.
A large factor in your ability to get credit is your income to debt ratio. After filing for bankruptcy and getting your past debts discharged, your income to debt ratio will probably be at its best level in a very long time. Many clients tell us they get credit card offers within weeks and sometimes days after filing or getting their debt discharge date. The important thing to realize is that the interest rates on these credit cards will be higher than they were before. Bankruptcy petitioners are required to complete a credit counseling course that will explain this and help you to guard against getting into the same situations that led to a bankruptcy. Using credit responsibly by buying based on needs instead of wants will help to keep your balances at levels you can handle. It will make you able to pay more than just the minimum payment, or the entire balance, and prevent the interest from tacking on to what you owe.
Living within your means is perhaps the most important step in rebuilding your credit after filing for bankruptcy. Since the economic recession hit a few years ago, nearly everyone has had to cut back on luxuries and everyday expenses to make ends meet. Nightly news stories and newspaper articles constantly show people who have been able to adjust and budget themselves into success and regained prosperity.
Whether it was a lost job, unforeseen medical expenses, a downturn in business, poor financial planning, or youthful inexperience that led you to needing to consider bankruptcy, the most important thing to remember is that bankruptcy is there to help you get back on your feet and not to ruin your credit for the rest of your life.