How Long Will Bankruptcy Screw Up My Credit Rating?

Your Credit Rating May Already Be Poor

Your credit score should not be your primary concern when you file for bankruptcy in Illinois.

Your credit score is may already be poor and bankruptcy can only help it, not hurt it.

However, I hear it all the time.  “How long before I can get credit again?”   “This will destroy my credit, won’t it?”

The vast majority of clients who see me are behind on their debts.

This, of course, is why they came to me in the first place.  They are 30, 60, and 90 days late, and have lawsuits, judgments, and everything in between.

Having debt problems is like a having tumor, though.  You get rid of it two different ways: (1) you pay off the debt -and that’s usually not an option, or (2) file bankruptcy and discharge it.  If you do nothing, the tumor just grows and grows.  Cutting it out allows you to heal.  It allows a fresh start.  And remember, for some of you your good credit rating got you into the mess you’re in.  It allowed you to obtain too many loans, too many credit cards, insanely high credit limits, and just plain get overextended.  Did you know that your credit score doesn’t even take into account your income or assets?  Those used to be pretty important to bankers.  But those times are gone.  Analyzing a client’s entire financial picture would take too much work and require someone to think.  So we have “the score.”  No thinking.  It’s like magic. And that’s likely why some of you fret about the score too much.

How Long Will It Be Before I Have a Good Credit Rating?

Fair question.  After all, you want to be able to refinance your house, buy a new house, or finance a car.  For mortgage loans, bankruptcy will “screw up” your chances of getting a mortgage for two to three years, depending on whether you do a conventional mortgage or a FHA mortgage.  Interestingly, foreclosure is far worse than bankruptcy for your mortgage chances.  Foreclosure screws you up for four years.  So the damage caused by bankruptcy is not forever.  And bankruptcy is better than doing nothing and allowing a foreclosure to happen.

This holds for car loans as well.  You’ll be able to get a car loan right after your bankruptcy is discharged (completed); you’ll just pay a high interest rate.  No worries.  The world is awash in used cars, and you’ll get a loan for one.  If you must take this route,  just don’t get an expensive car.  Try to keep it as inexpensive as possible.

This Isn’t the Issue Anyway!

The real issue is whether or not you can get through your financial problems without filing for bankruptcy.  If not, bankruptcy is your only option.  If, on the other hand, you can avoid bankruptcy, you should.  But in either case, your credit will recover.  You won’t be in financial purgatory forever.

If you need to file for bankruptcy, try not to worry about your credit rating.  If it’s not already bad, it probably will be very soon, whether or not you file bankruptcy.  The concern should be solving your financial problems.  Bankruptcy helps lots of people do that every day.

If you would like a copy of your credit report go to http://www.annualcreditreport.com