Will Filing Bankruptcy Ruin My Credit Forever?

By on April 23, 2012

Will filing bankruptcy ruin my credit - two people holding credit card

If you are worried that filing for bankruptcy will ruin your credit forever, don’t be. After filing, your credit rating can and more times than not does actually improve. The big reason for this is because all of the negative information currently being reported into the credit agencies actually takes a turn for the better.

Let’s look at an example to hopefully make it a little easier. Say you’ve got a credit card and you are continuously behind on your payments. This information gets reported out to the three major credit agencies each and every month. You show a history of being behind. And because it is reported monthly, it will continue to effect your credit score negatively until your take some action. One action you can take is to simply pay off these debts. The other action you can take, and probably the reason you are here, is to file for bankruptcy.

If you do file for bankruptcy and are fortunate enough to receive a discharge from the debts you owe towards the credit card agencies, this will show on your credit report. But now it will show simply as “discharged in bankruptcy”. Because they’ve been discharged, they won’t continue to negatively impact your credit rating month after month. The down side to it all is that your credit will go down immediately after the filing. But there is an upside, you also have the ability to start fresh and build it back up. Even though your initial credit score will be low after filing, if you take appropriate action you can restore your credit to a reasonable level.

Watch The Video Debunct The Myth That Filing Bankruptcy Will Ruin My Credit


This is just generally not true, a bankruptcy will stay on your credit report for 10 years, but that doesn’t mean that it ruin it forever. After 2 years it should be back to normal and will probably be better than it was before you filed. Within two years of filing you’ll be able to qualify for a mortgage, get a car loan, or pretty much anything else where you would need credit for. Before two years, you could still likely do all of that but the interest rates you’d receive would be much higher than after the two years.

One of the main reasons you are probably contemplating filing for bankruptcy is because you simply can’t keep up with your payments and are searching for some debt relief. Owing more than you can afford can have a detrimental impact to your personal financial situation. But after bankruptcy, those debts are discharged and you no longer owe an exorbitant amount each and every month to that over the limit credit card. You are freed from that debt. You are no longer servant to the lender and are not required to continue making payments.

You will soon find that you can get new credit cards that can be used to start your rebuilding efforts. Those new cards will likely be secured and backed by money that you physically put into an account, but they can be used as well as other practical money management techniques, to improve your credit score. Just be sure to use them wisely and to pay them on time and in full each and every month. Before long your credit score and financial situation all be on the rise again.

About Chris Copeland

Bankruptcy is a life-altering event that has both short and long term effects on a person, their relationships and their overall outlook on life afterwards. Having been through a bankruptcy, he had to learn along the way while voraciously consuming every piece of information he could on the topic. He is the author of a forthcoming book on bankruptcy and it's affect on your personal life, marriage and kids, soon to be published. He is a frequent contributing author on various personal finance sites and is actually fairly intrigued when it comes to taxes and corporate finance.

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