Bankruptcy has provided much-needed relief for countless Americans, yet some of the people who stand to benefit the most from filing Chapter 7 or Chapter 13 choose not to, mostly out of fear. Unfortunately, oftentimes I have found that clients of mine resisted exploring their bankruptcy options because he or she took one or more popular myths about filing to be the truth. This week, I will attempt to debunk a few of the more popular myths.
One of the most common myths concerning bankruptcy has to do with what happens to the credit of the person filing. Some homeowners have been told that their credit will be irreparably damaged for 10 years, while others seem convinced that they will never be able to get credit again. Of course, neither belief is actually true.
In fact, because you get rid of debt in a Chapter 7 or Chapter 13 bankruptcy case, filing actually puts you in a position to take on more credit. Thus, the mailboxes of many of my clients almost instantly fill with offers for new credit cards.
This incredibly popular misconception likely originated from the Fair Credit Reporting Act’s (FCRA) provision allowing bankruptcies to stay on a consumer’s credit report for a decade. While bankruptcy does stay on your credit report for 10 years, your credit score will improve long before 10 years is up. In truth, many of my clients who file bankruptcy can see marked improvement in their credit scores as soon as two years after filing.