HOW IS MY CREDIT AFFECTED BY BANKRUPTCY?

Anything you do concerning payment of your debts is a part of your credit record.

Your credit record is like a camera taking a picture of your credit history - usually for a period of 7 to 10 years. Each day a new day is added and the oldest day is dropped. Eventually, everything drops off your credit report. The normal time an event stays on your record is 7 years, including a Chapter 13. However, a Chapter 7 may stay on your record for up to 10 years.

Bankruptcy, like prompt payment, slow payment, foreclosure, repossession, charge-offs or any other manner of handling your debts, is reported on your credit record.

How your credit history will affect you depends on how the person reviewing your credit report wishes to interpret it. At one extreme, a prospective creditor may refuse you if you have filed bankruptcy of any kind. The creditor may not consider whether the debt was discharged under Chapter 7 and not repaid or what circumstances caused you to seek relief in bankruptcy, such as over extension of credit, loss of job, serious illness, unexpected major expense, such as major hospital bills, car repairs, death, divorce, etc.

On the other hand, a prospective creditor may consider all of these factors plus others, such as your future ability to repay in deciding whether or not to extend credit to you.

As we all know, good credit is paying what you owe, when it is due. Anything less is less than good. Since the consideration of bankruptcy arises only after a bad situation has developed, the chances are that your credit record is already less than good, or is rapidly heading in that direction.

Typically, a creditor that would not extend credit to you because of having a bankruptcy on your credit history is equally likely to reject you if you still have debts you cannot afford to pay timely. No creditor wants to extend more credit to you when you are unable to pay your already existing obligations.

Understand that bankruptcy is not damage. It is damage control. Its purpose is to take control of your circumstances away from your creditors and return it to you; so you can start rebuilding your financial situation.

While bankruptcy may be on your credit history for up to 10 years, the reality is that most people find that they can completely rebuild their credit in 3 to 5 years. An article in the Sacramento Bee put it simply in its caption, which read, "There Is Life After Bankruptcy."

It is hoped that whatever you do will be a step in the direction of improving and reestablishing good credit.