A Journey of 1000 Miles Begins with the First Step

One of the most common concerns among my bankruptcy clients is how bankruptcy will affect their credit (score), and in particular, their ability to one day obtain a mortgage loan (to buy a home).

It’s a very common misconception that bankruptcy “destroys” your credit for 10 years, but that would be an inaccurate statement.

A bankruptcy filing remains on your credit report for 10 years from the date of filing (Chapter 7) and for 7 years from the date of filing (Chapter 11 and 13).  But, the impact of bankruptcy is very often misunderstood.

First, the negative impact of the bankruptcy will lessen over time, even though it is still reported on your report. Therefore, you can begin the process of repairing your credit long before the 7 or 10 year-period expires.  

Second, it’s important to understand that other types of negative reporting (the kinds that tend to necessitate bankruptcy in the first place) also remain on your credit report for significant periods of time, and will also negatively impact your credit score.

For example:

  • Late payments: 7 years
  • Foreclosures: 7 years
  • Collections: Generally, about 7 years, depending on the age of the debt being collected.
  • Public Records: 7 years

As most people know, credit scores range from 350-800.  If you have a low score before filing bankruptcy (e.g. 400-500), eliminating these other “negative” accounts (with bankruptcy) many times causes your credit to score to increase right away.

Once these accounts are discharged in bankruptcy, you can begin the process of improving your credit right away by: (1) having them removed in some cases; (2) establishing new accounts to begin demonstrating a positive payment history (assuming you do it responsibly).  And believe it or not, credit card companies love people who have just completed bankruptcy, because they have little or no other debt remaining, and they generally cannot file again for another 8 years, making them a much better credit risk.

Even if your financial situation is not quite so dire, you have to consider how making payments on credit card debt will impede your ability to save for a down payment and closing costs.  You also have to consider how the monthly credit card payments will impede your ability to afford a mortgage payment.  And of course, you always have to factor in future obstacles and pitfalls that will prevent you from making  payments at all, and will ultimately result in negative reporting of late payments and collections.  These factors, and many others, are taken into account by mortgage lenders when determining your creditworthiness and any one of them can prevent you from qualifying for a mortgage.

Bottom Line:  If you’re saddled with debt, unable to keep up with minimum payments, have accounts in collection, and/or suffering with a credit score under 600-650, your ability to qualify for a home mortgage loan any time in the near future is quite unrealistic.  If you want to be able to purchase a home in the near future (say 2-5 years), you need to rid yourself of the bad debt, get out of collections and begin improving your credit score immediately.  Bankruptcy is very often the first step in that journey.

Still unsure about Bankruptcy?  Read through many Frequently Asked Questions:  https://leclawonline.wordpress.com/2018/06/14/bankruptcy-faqs/ 

Dispel all of your bad notions about Bankruptcy!  Read Bankruptcy Myths Debunked!: https://leclawonline.wordpress.com/2018/12/18/bankruptcy-myths-debunked/




Call: (908) 353-6700    Call/Text: (908) 266-4843    E-Mail: lcapece@leclawonline.com

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