“Will my credit score be ruined for the next ten years?”

This is by far the most prevalent question I am asked by debtors considering bankruptcy. The answer is “no”. This myth comes from the fact that the filing of a bankruptcy will show up as an event on one’s credit report for ten years. However, the existence of that even does not affect one’s credit score for ten years. If a debtor successfully completes a bankruptcy, Chapter 7 or Chapter 13, then all the pre-filing debts get re-characterized on the credit report. So, the clients of mine who have checked tell me their score is much better after the bankruptcy than it was when they filed the bankruptcy. It is then up to them to keep that new, healthier credit score.

In keeping with this, if a debtor has steady employment with a decent level of income, they are able to obtain financing for a home or vehicles soon after the bankruptcy is closed with only a small increase in the interest rate (around 1.0% more).

My main response, though, is, “Why would it matter if your credit score takes a hit?” This shows my bias against living in the revolving credit cycle. Those who go through a bankruptcy and then only buy what they can afford never come back to my office – at least not for another bankruptcy. However, I have counseled a number of folks who have settled into a pattern of serial bankruptcies because they never kick the credit addiction. So, my best advice is to live as though your credit score does not matter and it will not matter. I confess, I have not had any idea what my credit score is for several years now.