Does Bankruptcy Hurt Your Credit?
The answer to this question depends on the condition or your credit report immediately prior to a bankruptcy filing. If your credit score is in the "very good" to "excellent" range, the answer is "yes."
In most cases where bankruptcy is filed, however, the credit report is generally already trashed, messed up, and maxed out. This being the case, you have no credit for bankruptcy to hurt. There's nowhere to go but up, and filing bankruptcy can help wipe out the balances to put you in a position to restore your good credit.
While a bankruptcy filing is reported on your credit report for up to 10 years (Chapter 13 will sometimes drop off after seven years), that does not mean it will have a negative effect on your credit standing. In fact, for the reasons discussed above, most people's credit score improves after they file Chapter 7 or Chapter 13.
Filing bankruptcy gets rid of debt, which puts you in a position to handle more credit, and this makes you look more attractive to would-be lenders. At first, lenders will want more money down and will want to charge you higher interest rates. However, over time, if you are careful, and keep your job, and start saving money, and pay your bills, and do things that will put good marks on your credit report, your credit scores will get higher, and the terms you can get will improve. Many clients can qualify for mortgages, at regular rates, two years after their discharge.
People in Chapter 13 can often borrow money EVEN DURING THE CASE; people who've filed Chapter 7 get inundated with offers for new credit cards and car loans after they get their discharge. This is not credit at the best rates, but credit is certainly available.
At one time bankruptcy destroyed people's credit. Banks used to believe personal bankruptcy was a stigma on credit that a debtor could not overcome. Today, so many people file bankruptcy every year that banks cannot ignore this large market of potential customers. As a result, banks are much more lenient toward people forced into bankruptcy. While no one plans to file bankruptcy, the effect of filing today is not nearly as bad as your creditors would like you to believe.