Bankruptcy and Credit Scores

Debtors often wonder how bankruptcy is going to affect their ability to obtain credit. They also wonder how it will affect their credit scores.

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Sometimes this can be extremely important, but often debtors are misguided when they asked the question. While bankruptcy is obviously not good for your credit, what the debtors often don’t think about and often overlook is that your credit when they’re considering filing bankruptcy, is very bad at that time. Therefore, their current credit, even without a bankruptcy on the record, is not going to get them much in the way of a good interest rate on a loan.

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Therefore, often times, after bankruptcy, they are a better credit risk for several reasons. One reason is the debtor is ineligible if the debtor filed chapter 7 again for 8 years. As such, lenders know the debtor can only follow chapter 13 against them, not a chapter 7. Additionally, the debtor has discharged a lot of debt and therefore the debtor is a much better risk on the debt to income ratio scale, another reason is the debtor has more disposable income on a monthly basis, as the debtor doesn’t have to worry about paying any of their credit card bills.

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This is not to say that filing bankruptcy is good for your credit. A chapter 7 remains under credit for 10 years while a chapter 13 remains on your credit for 7 year. This is only to say that when considering credit scores and bankruptcy, debtors should consider what their current credit is getting them first. What they often times find out is that their credits score and credit worthiness will improve by filing bankruptcy.