There is a stigma surrounding bankruptcy, but much of it is undeserved; bankruptcy was created by our government for good reason, but debtors have a hard time seeing the value in it, at least at first. Often, when people are swimming in debt, they’ll delay bankruptcy for months if not years in an attempt to keep up with their payments.
In the meantime, interest and penalties will accrue and their debt will get so out of hand, they finally throw in the towel and file bankruptcy. And what happened before they finally made the decision? They hesitated for too long because they were afraid bankruptcy would ruin their credit.
If this describes you, there’s a good chance your credit already took a hit with late payments, collections, repossessions, evictions, and the like. Will your credit be better off if you spend the next 10 or 20 years trying to pay off your debt? Or, can you rebuild it faster if you file bankruptcy and get on with your life?
Is Bankruptcy the Better Option?
For many debtors, they are better off if they file bankruptcy. Usually, they can rebuild their credit much quicker if they file bankruptcy than if they were to chip away at their debt or stop paying it altogether. But how long does it take to rebuild one’s credit after a bankruptcy discharge?
While Chapter 7 is reported on your credit report for 10 years and Chapter 13 is reported for 7 years, that doesn’t mean your credit will be negatively impacted for that long. In fact, it’s very realistic to rebuild your credit so your credit score is into the mid 700s within 2 or 3 years following a bankruptcy discharge. To accomplish this, you must actively work on rebuilding your credit by:
- Shopping out credit card offers promptly after bankruptcy, opening a few accounts, and charging no more than 10% of the credit limit and paying off the balances in full each month.
- Paying all of your bills on time each month – NO late payments.
- Creating a budget and living within your means.
- Staying gainfully employed.
Rebuilding your credit is a lot like being 18-years-old and establishing good credit for the first time in your life. You’re essentially starting all over, but the principles are the same: get credit cards, keep your credit card balances low, and pay your bills on time.
If you play your cards right, it’s entirely possible to rebuild your credit in a few short years after a bankruptcy discharge, which is often far easier than not filing bankruptcy at all and letting your credit be poor indefinitely.