If you are considering filing for bankruptcy, you may be wondering…
How does filing bankruptcy affect my credit?
That is a great questions, and one that we get asked all the time. The simple answer is, filing bankruptcy will significantly impact your credit score. However, the question is not really that simple to answer. If your credit score is high, a bankruptcy will drastically lower it. On the other hand, if your credit score is already low due to late payment and large unpaid debts, bankruptcy may have a slight negative effect, but the benefits may outweigh the cost.
What to expect when you file for bankruptcy
1. Bankruptcy will stay on your credit report for a long time.
If you decide to file, you will likely file a Chapter 7 or Chapter 13 bankruptcy. A Chapter 7, which essentially wipes the slate clean and eliminates all of your debt, will remain on your credit report and potentially affect your credit rating for 10 years; a Chapter 13 will remain for seven years.
2. Bankruptcy will lower your credit score
Once you file for bankruptcy, you may see your credit rating drop anywhere from 80 to 220 points. I know that is a big range, but as I explained before, bankruptcy does not affect everyone the same. The higher your score is before the bankruptcy, the more points you will lose.
Another surprising fact is that, your credit score is not only affected by what you do. When determining your credit score, your information will be compared against others who have filed for bankruptcy. It’s crazy but true!
If you don’t know what your credit score is, you can check it for free at www.creditkarma.com
3. You will be stuck with some of your debt
Even if you file a Chapter 7 bankruptcy, some debts are still protected. Except in extreme circumstances, you will still be required to pay student loans, child support, and tax debt. If you are behind on these payments, your credit rating may drop an additional 70 to 120 points.
4. You can improve your credit score
Within a year or two, you may be able to get your credit rating above 700. Paying all bills on time will greatly help to improve your score. Another suggestion is to use a secured credit card to build your credit. Apply for a secured credit card, use it regularly and pay off the balance each month. This will add positive marks to your credit report to start balancing out the negative.
The bottom line is, bankruptcy should only be used as a last resort. If you are overwhelmed with debt, there are programs out there to help you such as Debt Consolidation and Debt Settlement. Both of these options will help you get out of debt fast and save you money in the long run.
If you have questions about whether bankruptcy is the right choice for you, give us a call at 1-877-492-4109 or click on the link below for a FREE CONSULTATION with one of our Debt Solutions Specialist.