Why Your Credit Score Shouldn't Deter You from Bankruptcy
If you're going through a financial crisis, you may be pondering the option of filing for Chapter 7 or Chapter 13 bankruptcy. At the same time, you may fear the impact that filing for bankruptcy can have on your credit score and thus your ability to take out loans or get approved for financing down the road.
While it's true that having a bankruptcy on your record will affect your credit for some time, the impact won't last forever—and there are many situations where filing for bankruptcy will be in your best interest regardless.
Understanding Bankruptcy and Its Impact on Your Credit
The specific impact a bankruptcy can have on your credit will depend on a few factors, including the type of bankruptcy for which you are filing. A bankruptcy stays on your credit report for 7 to 10 years.
In general, you can expect your credit score to drop at least 100-200 points following a bankruptcy filing. The specific impact it will have on your credit will also depend on your credit history before filing for bankruptcy, as well as the length of your credit history. However, once your bankruptcy is filed, there are things you can do to start increasing your credit score immediately. Following a bankruptcy discharge, you should review your credit reports for accuracy to ensure all your discharged debt is reported accurately. If there is an error on your report, make sure that you dispute it with the credit bureau to have it corrected. You can also increase your score by maintaining regular payments on secured debts such a house and vehicle payments. The bankruptcy filing will give you a clean financial slate, and by making smart decisions after filing, you will see your score increase.
Is Bankruptcy Still the Best Option for You?
While the short-term negative impact on your credit score is undoubtedly scary, the fact remains that for many in difficult financial situations, filing for bankruptcy is going to be the best option and will eventually improve your credit score as you tackle your debt. If you're facing a financial crisis that you don't have any hope of getting out of, your credit is likely to be more significantly affected through that than it would be by a bankruptcy filing.
Ultimately, it's important to look at the big picture. The purpose of a bankruptcy filing is to help give you a fresh financial start; some forms of bankruptcy can even be used to eliminate some of your debts, which will lessen the financial burden on you moving forward. Yes, your credit is going to be affected in the short term, but if you can benefit from bankruptcy in the long run, then it's most likely the right choice for you.
The best way to know for sure, of course, is to consult with an experienced financial advisor or bankruptcy attorney. He or she will be able to assess your current financial situation and make a recommendation regarding whether or not bankruptcy is right for you. If it is, you can also receive guidance on which type of bankruptcy will best suit your needs, as well as assistance in going through the filing process.
Improving Your Credit Score After Filing for Bankruptcy
Even if you do file for bankruptcy and notice a substantial hit to your credit score, there are steps you can take to boost your score within a few years. The key is to engage in responsible financial habits, such as:
• making all required payments on time
• keeping credit utilization low (ideally under 30%)
• using small loans responsibly to rebuild your credit history
Consult With a Bankruptcy Lawyer Today
Nobody ever wants to find themselves in a situation where their debt is unmanageable. When that happens, it's important to look beyond the short-term effects that bankruptcy can have on your credit, to the long-term benefits.
Looking for more assistance in filing for bankruptcy or determining whether it's right for you? An experienced bankruptcy lawyer can provide all the guidance and help you'll need through the entire process.
Copyright Fesenmyer Cousino Weinzimmer
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.