Bankruptcy and Your Credit Report

When you file for bankruptcy, it is a negative connotation on your credit report. However, filing for bankruptcy can actually help improve your credit over an extended period of time. 

One of the factors lenders look at when deciding to loan people money is the applicant’s debt to income ratio.  This is a percentage based on how much you make vs. how much debt you have.

After filing for a Chapter 7 bankruptcy all of your debts are discharged, instantly improving this ratio and making you more attractive to lenders.

In addition to reducing your outstanding debt, all of your negative payment history reports are eliminated.  Where it once said you had late payments, the slate is now is wiped clean.  Your credit report will now say only that the debt was discharged due to bankruptcy. 

Creditors know that people file for bankruptcy.  In fact, more people file for bankruptcy than contract cancer or get a divorce each year.  Surprised?  Don’t be.  There’s a significant amount of the American population doing this and the credit industry cannot afford to simply ignore that market. 

Another reason why your credit can actually improve after filing for a Chapter 7 bankruptcy is that you are barred from filing a new bankruptcy case for a period of eight years.  Creditors know that once you have received a discharge and they loan you money, you’re not going to be able to turn around and immediately file again. 

Most people who acquire debt have paid back the original amount borrowed several times over.  They’ve been paying mostly interest.  Trust us - lenders don’t mind getting you right back into that cycle.