A bankruptcy discharge will remain on your credit report for 7 to 10 years, but will quickly start to improve your credit rating. Credit ratings are computed by looking at the number of unpaid debts and collections accounts you have, and by looking at how much debt you have as compared to the amount of credit you have unused.
Before bankruptcy people often have several maxed-out credit cards and collections accounts, and it is these credit cards that are giving them the bad credit rating because they have much more debt than credit. A bankruptcy discharge creates the opposite situation by wiping out these debts, so that the filer has not used any of his available credit. The discharge also gets rid of most of the collections accounts and unpaid debts.
Think about it from the lender's point of view, would you rather lend to someone who already owes thousands of dollars to others, or to someone who has no other debts, but just filed bankruptcy? You would want to lend to the person who just filed bankruptcy and has no other debts because this person will have more money to pay off new debt. This is the secret that banks don't want you to know.
Most of our clients receive credit card offers within the month after they file bankruptcy, and many get home mortgages within 2 to 3 years of their discharge. The best way to maintain your credit rating in the face of mounting debt is to file bankruptcy immediately and start over rather than struggle over time to attempt to pay off debts that are constantly increased by late fees and interest. Every month that you don't pay off your credit cards or have an account in collections your credit rating drops. As soon as you file for bankruptcy, these things stop, and your credit rating begins to increase after an initial decrease for bankruptcy filing.