After a New York Bankruptcy – Myth #1: Bankruptcy Destroys Your Credit for 7 to 10 Years

For twenty-eight years, I have had to explain to my clients that this is a myth.  You should be able to recover a good credit score in about two to three years.  I even see people get mortgages three years later.

Believe it or not, right after the bankruptcy, credit card companies send people new credit cards.   Often times they come from the very credit cards that they filed bankruptcy on!  You don’t have to take my word for it.  I was quoted saying this in a front page New York Times story back in April of 2012.

Why would rich credit card companies want to lend money to struggling families?  People who just finished bankruptcy!  It is their business plan. They know struggling consumers are not making ends meet.  They are desperate for money when emergencies strike:  dental bills, medical bills other family emergencies.   They know consumers will borrow money out of desperation.   So they kill them with interest.  They look for people struggling and then make it worse for them by charging them interest.  This may make the credit card companies rich, but it is really evil.

Here is how this “business plan” works:  The credit card companies know if you use the credit card to borrow $1000 to pay the dentist let’s say – because your tooth really hurts – that you don’t have the money to pay back right away.  You end up paying back $2000 for a $1000 credit card bill because of interest!  All because they know you are so broke you will take over a year to pay the bill.

I call them “devil credit cards” because they are tempting you into trouble.  But, it breaks my heart to tell clients that they must have at least two devil credit cards to rebuild their credit scores.  We have a crazy system in America.   Your credit rating is based on borrowing and not on how much you save!

If you want to rebuild your credit score, you should immediately accept two credit cards that are offered to you in the mail right after bankruptcy.  Use them for small things like cell phone bills or groceries.  Pay on time.  Don’t ever borrow more than $1000 total on your credit cards.  If you have a true emergency, try anything else.  Try to borrow from family, ask for help from the government or friends, or other charities.  Yes, this is embarrassing.   But borrowing from the devil (credit card companies) will only make things worse.

The good news is that if you pay your new credit cards on time and never build up big debt, your credit score will go way up.  I see people’s scores return to over 700 and even qualify for new mortgages.  I am so proud of my clients who are able recover, save money, buy new homes and have A-1 credit.