LIKE most people, you’ve probably heard that filing for bankruptcy when you are in debt will ruin your credit forever and that you will never be able to buy a car or a home again. Nothing could be further from the truth. Is it actually possible to improve your credit rating by filing for bankruptcy? Or does filing always make your credit worse?
First of all, most people (not all) who are considering bankruptcy already have a tarnished credit rating. Unpaid bills, lawsuits, judgments, tax liens, etc. If you have any of these items on your credit report, the credit bureaus can retain this type of information for 7 years under federal law.
When you are in debt and can’t pay, your creditors continue to report your accounts to the credit bureaus so long as you remain delinquent. Filing for bankruptcy automatically stops this reporting of negative information. While the bankruptcy itself will be reported for 10 years, in the long run, you will be better off because now you have the opportunity to be debt-free and rebuild your credit.
Let me give you two possible scenarios: Let’s say you owe $30,000 in credit card debts and are paying a total of $600 per month in minimum payments. You and I know that with the outrageously high interest that the credit card companies are charging you, you will never get out of debt by just making the minimum monthly payments. But since the minimum payments are all you can afford to pay with the income you have, this is all you are paying.
Paying $600 a month is costing you $7200 per year and most of this is going to interest alone. In the next 5 years, you would be paying a total of $36,000! And how much do you think you are going to owe in 5 years? I guarantee you that it will be about the same amount that you owe now, perhaps a little bit less. Do you see where I am going with this?
Now let’s say you decided to file bankruptcy now because you realized that it’s your only way to start fresh. Your landlord (or the mortgage company) is harassing you because your payments are always late. Your relatives have stopped answering their phone because they know it’s you borrowing money again. You’re afraid to come out to your car in the morning because it may not be there anymore. Your life is miserable because your income is insufficient to pay for food, rent, clothing, car payments, let alone pay your credit card and other bills. Well, you decided to do something about it.
You said “Enough is enough. I will file for bankruptcy because I see no other way out. I will start fresh and rebuild my credit. Someday I want to buy a home and start saving for retirement.” So you decided to file after finding out that bankruptcy can only make your situation better, not worse.
You started saving the $600 that you used to throw in the “bottomless pit” when you were in debt. In one year, you could potentially save $4200. In 5 years, you could have $36,000, enough for a down payment on a house! Five years from now, your bankruptcy will be 5 years old. And if you make an effort to rebuild your credit right after bankruptcy, there is a good chance that you would qualify for a home loan in just a few years if other credit factors are appropriate (you know, a stable job, money for a down payment, maybe a co-signer). See, filing for bankruptcy should be a beginning for most people, not the end of the world.
Now if you were the bank 5 years from now, who would you loan money to? The person who owes too much money, has no money for a down payment, and has delinquencies on their credit report? Or the other person who has a 5-year old bankruptcy, has zero debts and can afford to put $36,000 as a down payment on the home they are buying? I think you already know the answer.
The point is this: In a lot of cases, believe it or not, filing for bankruptcy can actually improve your credit. But to realize this, you need look at the bigger picture and not let your current situation limit your vision. Don’t look at how things are now, but how they could be in the future! What you do about “now” determines what “future” is going to be. Now is nothing more than the future in the making.
Bankruptcy laws were designed to help you start over financially if filing is your only chance to get out of debt. Of course, it’s not for everyone. Take a good hard look at your finances and see where your current situation is leading you. If you need to know more about bankruptcy as an option to solve your debt problems, call. For a free attorney consultation, call Toll-Free 1-866-477-7772. We have offices in Glendale, Cerritos and Valencia.
* * *
None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped thousands of clients in getting out of debt. For a free attorney evaluation of your situation, please call Ray Bulaon Law Offices at TOLL FREE 1 (866) 477-7772.