Tuesday, February 1, 2011

Should damage to my credit keep me from filing bankruptcy?

Assuming your bankruptcy goes to discharge without objection, you will now find yourself with the daunting task of rebuilding your credit, post-bankruptcy. A Bankruptcy appears on your credit report and will negatively impact your credit score. Because bankruptcy negatively impacts your credit, borrowing money may be more difficult, and when possible, may be more expensive.

A bankruptcy filing remains on your credit report for 10 years, and individual debts discharged in bankruptcy for 7 years following your discharge. Therefore, whenever you apply for credit, a new loan, or undergo a background check, a previous bankruptcy will be visible to the loan officer, hiring manager or credit card company.

But what is the alternative?

If you have a significant amount of debt and can't make the payments then your credit is already damaged. If you are making the payments but can only make the minimum payments, then you may be able to save your credit but only if you are able to find a way to pay down your debts.

A good guideline for deciding if you are a potential candidate for bankruptcy is to consider how long it will take you to pay down your debts. If you make a realistic budget of all of your income and expenses and pay all of your excess income towards your debts, how long will it take you to pay them off? If the answer is five or more years, then you may be a good candidate for bankruptcy and should consult with an attorney to find out more about your options.

As long as you cannot pay down your debts you won't be able to borrow or use your credit anyway, so filing bankruptcy may be a better alternative. This is especially true if you are only paying minimum payments and have no realistic chance of paying down your debts in the foreseeable future.

How filing (or not filing) affects your credit is only one factor in making a decision about whether or not to file a bankruptcy and you should consider how your credit might be affected by your debts regardless of whether or not you file a bankruptcy.


  1. Before filing for a bankruptcy why not try other options first like taking debt counseling. It will enlighten you and will make you more relaxed to think of other solutions to your problem. Try also unsecured loans which do not require you a good credit score and use it to for a working capital or additional capital to increase production and profitability so you can pay your debts and save your reputation. Discover the world around you before making a very hard decision which holds your future.

  2. John,

    Thank you for the thoughtful comment. We agree that it is important for people to consider other options before filing for bankruptcy. If there is a way to save your credit that has value.

    I would, however, caution against taking further loans without at least consulting with an attorney. If you take a loan, and then are still forced to go bankrupt, the circumstances of that loan may be suspect (which could cause it to be non-dischargeable in bankruptcy).

    Either way it is very important for you to be well informed about all of your options including debt consolidation, counseling, and bankruptcy.


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