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Will Chapter 7 bankruptcy ruin my credit?

This is a question that I am often asked and it is understandable that you would be concerned about how your credit will be affected by bankruptcy. If you are considering bankruptcy, it is likely that you currently have poor credit. Of course, the ideal way to repair credit is to pay off outstanding balances, pay any new bills in a timely manner, and to be careful not to borrow too much. Unfortunately, circumstances, often beyond our control, such as job loss, a serious illness, or an unaffordable mortgage can result in insurmountable debt.

A bankruptcy will remain on your credit report for ten years. However, this does not mean that bankruptcy will ruin your credit. Many people fear that they will not be able to obtain credit for ten years following their bankruptcy. It seems I meet with at least one new bankruptcy client every other day that has this misconception. My clients' experience tells me this is simply not true. Depending on your employment and income situation you are likely to be offered car loans and credit cards shortly after your bankruptcy discharge. Just today, I talked to one of the car dealerships that works with my clients and they now have four (4) lender that will underwrite Chapter 7 debtors even before a discharge so long as the 341 Meeting of Creditors has taken place. Some people are able to purchase a home within two or three years of a chapter 7. These loans do usually come with higher interest rates, but keep in mind that we still enjoy historically low interest rates. So, a high risk home loan may be 8-9% and a high risk car loan may be 10-12%. Plus, incurring new credit after your bankruptcy may actually help you rebuild your credit.

Many people are surprised to learn that they will actually have a more favorable credit rating after their bankruptcy than they did before bankruptcy. This is due to both the change in debt to income ratio and that a person who has just gone through bankruptcy is less of a credit risk than a person who looks like they are on the verge of bankruptcy. If you stop to think about it, it makes sense. If you were lending money, would you lend to someone with $50,000.00 of credit card debt and no solution or someone your took the initiative to resolve their debt and came out of bankruptcy with $0.00 credit card debt. After bankruptcy, you are a blank slate because you have a fresh financial start. Ironically, you are a better credit risk for filing Chapter 7.

In the months and years following a chapter 7 discharge, if you carefully manage your finances, you should be able to obtain car loans, credit cards, and even qualify for a home mortgage. I have been doing this for more than fifteen (15) years and represented thousands of individuals and families in Chapter 7 and this has been their experience.

For more information on bankruptcy in Ohio, contact my Columbus, Ohio office at 614-556-4522

-Mark Jump

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