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How Long Bankruptcy Affects Your Life

impacts of bankruptcyAs long as you like. And in some respects, not at all.

You’re in debt and can’t climb out of the hole. So you bite the bullet and file for bankruptcy.

It’s not what you wanted to do, but it’s what you needed to do.

Now, sitting with your discharge in hand, you wonder: how long will this drag me down?

Tough question.

The answers may change your thinking about filing for bankruptcy.

Your Credit Report And Bankruptcy

The fact that you filed for bankruptcy will remain on your credit report for 7-10 years depending on the type of case you filed.

Your old debts, the ones you wiped out in bankruptcy, will show a balance due of $0 with a notation that the debt was discharged in a bankruptcy case.  Those tradelines will remain on your credit report for 6 years.

The real question, however, is how long your credit score will remain negatively impacted by the fact that you filed for bankruptcy.

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Here’s where things get more complicated.  Credit scoring takes into account a variety of factors, including your recent payment history. If you’ve got no debt coming out of bankruptcy, the impact of the case will be larger at first and decline slowly.

If, on the other hand, you have debts that were not wiped out in your bankruptcy case (for example, student loans) and make all post-bankruptcy payments on time then the impact on your credit score will decrease more quickly.

A rule of thumb is that your credit score should start to rise about 12-18 months after your case is closed.  If you’re smart about handling your new debt, your credit score should be in terrific shape in about two years.

The Impact On Your Personal Financial Situation

Once you’ve filed for bankruptcy, you’re no longer going to be paying those debts.

Now is the time for you to sit down and work out a budget that includes putting some money away for the proverbial rainy day.

I’m in in your pocket, but without the money going out each month to pay the debts I’m sure you can spare a few bucks for savings.  In just a few months, that cushion will be large enough to float you through the bumps in the road of life.

Your State Of Mind

I know how it feels to be deep in debt without a way out. You feel trapped, like an animal in a very small cage.

Every phone call produces anxiety and fear.

You find yourself holding your breath when you pick up the mail.

So your relationships suffer, your sleep patterns are thrown off, and you get tossed into a mad whirlwind of depression. Overall, you become a person who is a not nearly as nice and kind as the person you used to be.

But now that there’s no more debt, the ringing phone signals a friend or family member who wants to talk with you. Mailboxes contain … well, probably junk mail that you can toss out.

You sleep better, for the first time in a long time.

That good feeling can last forever, so long as you keep yourself out of debt.

The Bad Falls Away, The Good Remains

Yes, there’s a credit score hit when you file for bankruptcy. But that hit falls away pretty quickly.

On the flip side, the positive impact on your life can be long-term and sustained.

If you’re at the point where bankruptcy is the best option – or if you’ve already gone through bankruptcy – consider the short-term burden as a small payment for long-term benefits.

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By |October 28th, 2013|

About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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