If I file bankruptcy, is my credit ruined forever?
Short answer – no. The Fair Debt Reporting Act controls how your credit history is treated and reported. The maximum time any information regarding a debt stays on your report is 10 years.
The filing of a Chapter 7 case will be reported on your credit history and will stay there for 10 years. If you file a Chapter 13 case, that information stays for 7 years. If you have negative information such as late payments, that also stays for 7 years. Therefore, if you know that this negative information is already on your report, it is unlikely that the filing of a bankruptcy case will make matters worse.
You are probably wondering how the concept of creditworthiness is viewed by potential creditors. Well, first off, they know that if you get a discharge in a Chapter 7 case, you cannot file again for eight years. Who do you think is more creditworthy? A consumer who has discharged all his debts and is now basically debt free, or one who owes $50,000 in credit card debt, and barely stays afloat by borrowing from Peter to pay Paul?
If you have a steady job – a regular income – and few debts after bankruptcy, financial institutions would be foolish not to approve a mortgage or car loan.