Lawyer Gal's Blog

A Young Lawyer's Perspective

How does filing bankruptcy IMPROVE credit?

A lot of time, people’s credit improves after bankruptcy.  Most people who file are already behind on payments, have high balances and face collection accounts – so there credit score isn’t usually very good.

Although bankruptcy usually stays on credit reports for 7-10 years, people often find it easier to obtain credit after a discharge.

  • A debtor’s credit report is essentially wiped clean after bankruptcy: all the late payments and records on unpaid debts are marked as “included in Chapter 7 Bankruptcy.”
  • Creditors know that the Bankruptcy Code permits filing once every 8 years, so someone fresh out of bankruptcy cannot turn around and refile.
  • Income that otherwise would be spent on debts “frees up,” allowing people to build credit with timely payments.
  • Bankruptcy shows that you are dealing with your debt, as opposed to letting it compile.  Some banks would rather see this.
  • Developing new lines of credit can improve your score rapidly.
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May 31, 2010 Posted by | Uncategorized, Your legal rights | , | 1 Comment