This is probably the most common question I get asked by potential clients. Everyone seems to think that there is some rule saying “you can’t use credit for 7 years after bankruptcy.” The idea that bankruptcy destroys your credit for nearly a decade is an urban legend. At some point in the past it may have been true, and I suspect that is where the belief originated. These days, however, recovery from a bankruptcy case is a much quicker process.
How Can I Recover?
The change is thanks in large part to an amendment to the Bankruptcy Code called BAPCPA. The acronym stands for Bankruptcy Abuse Prevention and Consumer Protection Act. BAPCPA was enacted by Congress in October of 2005, and it overhauled the bankruptcy system in big ways. Many of the changes were designed to make it more difficult to file a bankruptcy case.
BAPCPA introduced the Means Test, which puts tighter income limits on filing Chapter 7 liquidation bankruptcy. It also heightened the requirements to file in the first place, made it even more difficult to file back-to-back or repeat cases, and lengthened the amount of time a person must wait after receiving a discharge before filing again.
One of the end results of all these changes was to make creditors feel more comfortable lending money to individuals who have just gotten out of a bankruptcy case. Creditors know that a person who has just gotten a bankruptcy discharge has had most or all of their debts wiped away and they cannot file a Chapter 7 bankruptcy again for another 6-8 years. In other words, that person is a safe bet to lend to because they are no longer struggling to pay other bills and they can’t turn around and file another case.
In practice, we typically find that a good waiting period after finishing a bankruptcy is not 7 years, but actually about 6-9 months before trying to make any large credit purchases, such as a new car. That is typically enough time for your credit to rebuild such that you shouldn’t have too much trouble getting a good interest rate. For very large purchases, like a new mortgage, the general rule of thumb is to give it 1-2 years from the bankruptcy discharge.
If you’re struggling with financial hardship but your worried that filing bankruptcy will leave a permanent negative mark against you, don’t worry! We can help you eliminate your debts and rebuild your credit. At Bond & Botes, our attorneys have years of experience handling all aspects of the bankruptcy process. We have convenient offices in Alabama, Mississippi, and Tennessee and we offer free face-to-face initial consultations. If worries about the lasting effects of bankruptcy have stopped you from looking at your bankruptcy options, give us a call today to set up an appointment!
Nick Gajewski is an Associate Attorney at the Bond & Botes Law Offices in Florence and Haleyville, Alabama. He holds a Bachelor of Arts from the University of Alabama, and a Juris Doctorate from the University of Alabama School of Law. Nick joined the team of Bond & Botes bankruptcy lawyers back in 2014 and has been helping clients navigate financial issues since. Read his full bio here.