Written by Charleston Bankruptcy Lawyer, Russell A. DeMott
Okay. I admit it. The title’s a bit blunt even for me. But this was one of the Google searches that brought a potential client to my site. I feel a bit guilty for not answering this question yet, so this one’s for the guy (or gal) who has a question about screwed up credit. And it’s a fair question.
I get it all the time. “How long will it be before my credit rating recovers?” “This will destroy my credit, won’t it?” If I had a dime every time I’d been asked those questions over the years, I’d be a rich man.
Your Credit Rating is Already Screwed Up!
My answer to this question is usually the same: “you already have bad credit.” The vast majority of clients who see me are delinquent on their debts. This, of course, is why they came to me in the first place. They have 30 day lates, 60s, 90s, lawsuits, judgments, and everything in between.
Having debts problems is like a tumor, though. You get rid of it two different ways: (1) you pay off the debt–and that’s not an option much of the time, or (2) you file bankruptcy and discharge it. If you do nothing, the tumor just grows and grows. Cutting it out allows you to heal. It allows a fresh start. And remember, for some of you your good credit rating got you into the mess you’re in. It allowed you to obtain too many loans, too many credit cards, insanely high credit limits, and to get just plain overextended. It was the financial industry’s idiotic blind faith in the almighty credit score at work. In case you didn’t know, your credit score doesn’t take into account your income or your assets. Those used to be pretty important for bankers. But those times are long gone. Actually analyzing a client’s entire financial picture would take too much work and require someone to actually think. So we have “the score.” No thinking. It’s like magic. And that’s likely why some of you fret about the score too much.
Okay, okay. But How Long Will it Be Before I Have a Good Credit Rating?
Fair question. After all, you want to be able to refinance your house, buy a new house, or finance a car. For mortgage loans, the bankruptcy will “screw up” your chances at getting a mortgage for two to three years, depending on whether you do a conventional mortgage or an FHA mortgage. Interestingly, foreclosure is far worse than bankruptcy for your mortgage chances. Foreclosure screws you up for four years. So the damage caused by bankruptcy is not forever. And bankruptcy is better than doing nothing and allowing a foreclosure to happen.
This holds true for auto loans as well. In fact, you’ll be able to get an auto loan right after your bankruptcy is completed; you’ll just pay a high interest rate. No worries. The world is awash in used cars, and you’ll get a loan for one. If you must take this route, just don’t get an expensive car. Keep it at about $10,000 or less.
This Isn’t the Issue Anyway!
The real issue is whether or not you can get through your financial problems without filing bankruptcy. If not, bankruptcy is your only option. If, on the other hand, you can avoid bankruptcy, you should. But in either case your credit will recover. You won’t be in financial purgatory forever.
If you need to file bankruptcy, worrying about your credit rating is senseless. If it’s not already bad, it probably will be very soon, whether or not you file bankruptcy. The concern should be solving your financial problems. And bankruptcy helps lots of people do that every day.