Will a Bankruptcy Ruin My Credit Forever?
No, even though it's not good news. If your credit score was low before the bankruptcy -- the result of late payments and collections -- it won't get much worse afterward. If your score was high, though, expect a steep drop after declaring bankruptcy.
A completed Chapter 13 bankruptcy stays on your report for seven years and a Chapter 7 bankruptcy stays on for 10 years [source: FICO]. This is similar to late payments, collections, foreclosures or other matters of public record (tax liens, civil lawsuits) that also mar your record for seven years.
Each lender has its own rules for allowing you to reapply for credit. For FHA-backed mortgages, the waiting period is two years after a Chapter 7 discharge before you will be considered. And even then, you must show documented proof that you can successfully manage your finances. Chapter 13 filers can apply after a year of on-time installment payments [source: HUD].
Fannie Mae, however, has stricter post-bankruptcy mortgage lending rules: a minimum of four years after a Chapter 7 and two years after a Chapter 13.
Credit cards, ironically, will clamor for your business, but beware! Since federal law prevents you from declaring Chapter 7 within eight years of a previous Chapter 7 filing, the credit card company knows that you'll be on the hook for any balances you run up on the new cards, which also carry extra high interest rates [source: Michon].