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Will Filing for Bankruptcy Ruin My Credit Forever?

The short answer is NO; bankruptcy will not ruin your credit forever. In fact, one of the most misunderstood effects of bankruptcy is the effect it has on credit scores. Initially, your credit will be negatively impacted by the bankruptcy. Generally speaking, a Chapter 7 bankruptcy will stay on your credit for ten years, while a Chapter 13 bankruptcy will stay on your credit for seven years. However, the time it takes to rebuild and ultimately raise your credit score is much sooner than most realize.

The filing of bankruptcy is viewed as negative information for your credit score. Those who file bankruptcy will see an initial drop in their credit score. For many bankruptcy filers, this initial drop is meaningless as their credit scores had suffered prior to filing. If you are lucky enough to have a relatively high credit score before filing bankruptcy, you should expect to see your score lower once you file.

But the initial drop in credit score is not the end of the story. Credit scores are, in part, determined by your debt-to-income ratio. Once your debt is discharged, your debt-to-income will immediately improve (sometimes drastically). This improvement results in your credit score rising.

In most cases, the benefits of bankruptcy outweigh the temporary drop in your credit. Many people are shocked to see their credit scores rising while the bankruptcy still shows on the report.

Assuming you manage your debt wisely, rebuilding your credit after filing bankruptcy can start immediately and end with a score that is higher than prior to filing. In most cases, with proper rebuilding practices, you can start to see your credit score rise in one to two years after filing.

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