Exactly How Will My Credit Report be Affected in Bankruptcy in New York?


One of the biggest things preventing people from filing bankruptcy is the fear of what will happen to their credit report. Our prospective clients in New York City are oftentimes under the impression that their credit will be destroyed for 10 years and that they won’t ever be able to finance a mortgage or get a new credit card. This is simply not true.

Your credit score is an indication of the likeliness you will be able to pay back a loan. The higher the score the more confidence a creditor will have in your ability to make good on the payments. Various factors are used to determine your FICO credit score including most importantly the length of your credit history, the amount of money you owe, and your payment history.

When you file for bankruptcy protection your credit score will take an initial blow, and it is true that the word “bankruptcy” appears on your credit report for 7 years. These facts alone make it seem as though your credit will be ruined forever, but in reality your credit score will begin to improve within 15 months after your bankruptcy. You will still be able to finance a car loan and get a mortgage within only a couple of years.

At first glance it is confusing for many clients to understand how bankruptcy could possibly improve someone’s credit score, but here is how it works. When you declare bankruptcy and get rid of all the bad debt that has been keeping you down you have actually completely reversed one of the three most important factors in your credit score, the amount of money you owe. Since the large amounts of money you owed are now eliminated from the credit formula, even though bankruptcy is on the report the credit score will actually begin improving. The word “bankruptcy” appears, but there is no indication as to who the creditors were, or how much you owed them when you filed. A new creditor might know you went bankrupt, but they also know they have 7 years to collect from you, and that you have no more toxic debt that would prevent them from getting their money. To most creditors a person in this situation is a lower risk than someone with terrible credit who could at any moment go bankrupt. Credit card companies know this too, and it is not uncommon to see new card offers from the same companies you are receiving a discharge from before your bankruptcy is even finalized.

Don’t let the fear of a bad credit report affect your right for bankruptcy relief. If you are considering bankruptcy protection, but are concerned about how your credit report will be affected please give the Law Offices of William Waldner a call at call today at 212-244-2882 to arrange a free bankruptcy consultation.

This article is intended for educational purposes only. By reading this article no attorney-client relationship has been created.