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Law Offices of Carol D. Ellis, P.A. Law Offices of Carol D. Ellis, P.A.
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Effect on Credit and Reputation


A bankruptcy will be part of a debtor's credit history for as long as the law allows, that is, 10 years under the Fair Credit Reporting Act. This means that anyone who requests a credit report will be informed of the bankruptcy filing.  The effect this will have on future credit cannot be predicted, but it is an understandable concern of many people who are considering bankruptcy.

There is no definite response to this concern. However, debtors who owe substantial amounts, especially if they are in default, already have poor credit ratings. In the eyes of some creditors, a bankruptcy that wipes the slate clean will be an improvement. Not only will the potential customer be free of other financial obligations, but he or she will also be unable to obtain a Chapter 7 discharge for another eight years in most cases. For these reasons, some creditors have been known to actively solicit recent bankruptcy debtors.

As bankruptcy has become more prevalent in the United States, creditors have increasingly considered it only one factor in their decision about granting credit, and most have chosen not to automatically exclude the ever-growing number of people who have filed a bankruptcy case. Even mortgage lenders are often willing to disregard a bankruptcy that is more than a few years old.

Bankruptcy's effect on a debtor's reputation in the community is almost always imperceptible. In a small town, however, especially if debts are owed to local people, the stigma of bankruptcy cannot be entirely discounted. The potential harm can only be evaluated locally, on a case-by-case basis, and weighed against the advantages that bankruptcy offers. Again, the possibility of voluntarily paying selected debts should not be overlooked if it would ameliorate the problem.