This question, or some form of it, is asked by virtually every person that comes in to see us to discuss their financial problems. The answer is usually fairly simple. By the time they have come in to see us, their credit is already ruined! This doesn’t necessarily mean that they have a bad credit score. Some folks manage to keep making minimum payments each month. Unfortunately, this is often done by taking cash advances against another card and or borrowing money from a payday loan store. But even in these cases, the poor individual is hopelessly over extended and living with a great deal of stress.
The old myth about bankruptcy ruining a person’s credit for seven years seems to come from a belief that a bankruptcy filing can be listed on a person’s credit report for seven years. But even this belief is incorrect. A bankruptcy filing can, in fact, be listed on a filer’s credit report for ten years from the date of filing. This does not mean, however, that a person has bad credit for ten years. In fact, a bankruptcy discharge can often make it EASIER to obtain credit.
Doesn’t make sense? Well think about it from a practical perspective. Say you go to a banker to borrow money today. You have NEVER filed bankruptcy. You have, however, been a week or two late on your mortgage or car payment a couple of times. You have about $25,000 in credit card debt and have only been making minimum payments for awhile now. You may even have a payday loan or two. In other words, you are barely getting by. If the banker lends you money today, he will be competing with all of your other creditors to be paid on his loan. You barely have enough money to pay them. How are you going to pay this new debt? In addition to all this, the banker will have to consider the fact that you could file bankruptcy on the other creditors and him after he lends you the money.
Now fast forward. You filed a chapter 7 bankruptcy and discharged most of your debt last year. Since that time, you have made your house and car payments on time every month. You have no other creditors. If the banker lends you money now, he will not be competing with other creditors. Furthermore, he will not need to worry about you filing another chapter 7 bankruptcy. You cannot file again for eight years after the first bankruptcy was filed. From this perspective, you are less of a risk now then you were before filing your bankruptcy.
If you question this logic, call the finance manager at your local car dealership. You will likely learn that you can qualify for an automobile loan the day after you receive your bankruptcy discharge. Call a real estate agent. You will also learn that many people qualify for a mortgage within a few short years after a bankruptcy discharge.
Now this doesn’t mean that bankruptcy is the best option for you. Bankruptcy should never be your first choice. If, however, you are struggling with debt, you should sit down with an experienced consumer bankruptcy attorney and fully explore how a bankruptcy will affect your credit. Please contact our office nearest to you to set up a free private and confidential consultation visit with one of our licensed attorneys.
Brad Botes is a principal of each of the Bond & Botes Law Offices throughout Alabama, Mississippi, and Tennessee. He holds a Bachelor of Science from the University of North Alabama, and a Juris Doctorate from Cumberland School of Law at Samford University. He and his team of bankruptcy lawyers have spent over 30 years guiding people through financial challenges. Read his full bio here.