How Will Filing for Bankruptcy Effect My Credit

Filing for bankruptcy wipes your credit history and you begin with a “fresh start.” After filing for bankruptcy it is likely that the bankruptcy will be part of the debtor’s credit history for as long as the law allows. Under the Fair Credit Reporting Act, a bankruptcy is permitted to be reported for 10 years from the date the bankruptcy was filed. However, the three major credit-reporting agencies report chapter 13 cases for a shorter time, typically the 7 year time period used for most information.

The effect a bankruptcy will have on future credit is less predictable, but it is an understandable concern for anyone thinking about filing for bankruptcy.  However, it is important to remember that those filing for bankruptcy that have substantial debts and debts that are in default already have poor credit histories.

For most creditors, a bankruptcy that wipes the slate clean is an improvement. Additionally, the potential customer will be free of other financial obligations. Further, a creditor will know that someone who just filed Chapter 7 bankruptcy will be unable to obtain another chapter 7 discharge in a subsequent chapter 7 bankruptcy filing for another 8 years. For these reasons, some creditors have been known to actively solicit recent bankruptcy debtors soon after their bankruptcy case is over.

Most creditors have chosen not to automatically exclude people who have filed for bankruptcy especially if a few years have passed. For example Fannie May requires a waiting period of four years from discharge or dismissal of a Chapter 7 case and as little as two years from discharge or dismissal in a chapter 13 case before mortgage loan is saleable to Fannie May.

In any event, it is fair to say that each credit decision turns on the bias of the individual creditor and that most creditors look more to the individual’s current income situation and its stability than anything else.

This article is written by an attorney at Wyatt & Mirabella, PC. Always consult an attorney before making any legal decisions. To make an appointment today for a free consultation, please click here to contact us.