Many people fear filing bankruptcy. They rightfully believe there is a stigma in just filing, never mind in going through the entire process and receiving a "Discharge". Among their concerns is that many people feel their credit rating will suffer significantly if they choose bankruptcy. Oddly enough, for most individuals filing bankruptcy, the bankruptcy may be the only "positive" item on their credit report.
A credit report is a history of how well you have made payments to creditors for the last 10 years. The information is provided to the credit reporting agencies (often called credit bureaus) by certain of your creditors. In addition to the information from creditors, your credit report includes information from the public records and other sources and as a result your it may include information on pending lawsuits, judgments, tax liens overdrawn bank accounts and other information.
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Filing a Bankruptcy does not cause information to be removed from your credit report. In fact, in addition to all of the information already on your credit report, once you file bankruptcy your report will show the bankruptcy filing. The advantage to filing bankruptcy from the standpoint of your credit history is that once you complete the bankruptcy processes you will ordinarily receive a "Discharge of Indebtedness" which is a signal to creditors that you no longer owe most of the types of the debts which you owed at the time you filed bankruptcy unless you specifically agreed in writing to continue to pay the debt.
To creditors who may be interested in extending credit to you, this means you are no longer subject to lawsuits, judgements, the possibility of being sued on old debts, you may have been relieved of certain tax debts and may otherwise be experiencing much improved financial health. Under these conditions, even though the credit report looks poor, certain creditors will still consider extending credit because they no longer have to be concerned that your pay check or bank accounts or other financial resources will be interfered with by other creditors, preventing you from having the resources to pay them.
To improve your credit report after bankruptcy:
Once you have completed your bankruptcy, it is likely you will want to take steps to improve your credit. Getting a copy of your credit report is a good starting point. Review the report for inaccuracies. If you find inaccurate information you can generally have it removed by writing a letter to the credit bureau or agencies. Usually sending out letters to all major credit bureaus at the same time is the most effective. Basic information on writing these letters can be obtained by reviewing information readily available on the internet.
In addition to trying to correct adverse information on your credit report, be sure to begin making payments on a timely basis to your ongoing creditors, such as your mortgages, utility bills which report to credit reporting agencies, auto loans and similar debts. You do not want to continue to create bad credit on an ongoing basis.
Finally, it is possible to obtain credit after bankruptcy. For instance, you can obtain a secured credit card. A secured credit card is a credit card where you put down a deposit with a credit card company which extends credit secured all or in part against the deposit. The interest rates are usually high, the late payment penalties high, and there are usually other adverse aspects to use of the cards. In other words, they tend to be a "bad deal", however, if you pay faithfully they do report to the credit reporting agencies and you can build up your credit.
You can also obtain auto loans or other "instalment loans" after bankruptcy, though you once again have to watch out for high interest rates. A large down payment or a co-signer may be needed to keep the interest rates reasonable. Making these and other payments faithfully after bankruptcy can allow you to re-establish credit after bankruptcy, credit which you could never have obtained if you had you never made the difficult decision to file bankruptcy in the first place.
* This article does not constitute legal advice and does not establish an attorney-client relationship.
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