Bankruptcy can affect credit rating for many years after case is filed
The effects of bankruptcy don't end when the U.S. Bankruptcy Court has made a ruling on an individual or company's bankruptcy case.
The effects of bankruptcy don't end when the U.S. Bankruptcy Court has made a ruling on an individual or company's bankruptcy case.
For many years later, the bankruptcy decision will remain on their credit report in the same way that property foreclosures or non-payments on deep financial debt continues to be recorded in a credit history.
Bankruptcy information will stay on a credit report for up to 10 years. "Bankruptcy is a legal way to discharge your debts, but filing bankruptcy will have the most negative effect on your credit score," according to personal finance expert Lynnette Khalfani-Cox, who writes "The Money Coach" column online and is the author of Zero Debt: The Ultimate Guide to Financial Freedom. "It's always in your best interest to make sure that information about the filing is reported to the credit bureaus correctly."
Khalfani-Cox writes in AskTheMoneyCoach.com that it is the "disposition" status of a bankruptcy - or the final outcome taken by the courts on a debtor's case - that will negatively impact one's credit rating. "In a lender's eyes, you are a 'high risk' candidate and many lenders will simply deny you for a loan [or new credit card] because of your credit history," she writes.
One point that Khalfani-Cox believes that people frequently misunderstand is the difference between a statute of limitations on debt and how long they can expect their credit report to be affected by a bankruptcy. The legal limitations of debt have nothing to do with how long a bankruptcy remains on a person's credit report.
Foreclosure on property has a similar impact on credit ratings and will remain on a credit report for as much as seven years from the date of filing. Both lenders and underwriters of a mortgage will view an application for a new mortgage as risky and may not agree to approve a loan.
However, approval for new credit cards or car loans can occur within a couple of years after a bankruptcy or foreclosure, although at higher interest rates and fees.
"While a bankruptcy will remain on your credit record for up to 10 years, you can still bounce back and reestablish a good credit rating," according to Parade magazine. "In a best-case scenario, after having your debts discharged by a court, you could qualify for a car loan with good rates in a year and a mortgage in two to four years."
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