Your credit score will take a major hit, plummeting over 200 points, when you file for bankruptcy. However, if you have a lot of financial debt, bankruptcy may be the best way for you to liquidate your assets, discard or pay any debts, and get some financial relief. Therefore, when considering bankruptcy, you’ll want to know the truth about it before filing.
Negative Information on Your Credit Report
While some people will try to tell you that having negative information on your credit report before filing for bankruptcy will mean that you’ll have a lower credit score post-bankruptcy, this simply isn’t true. In fact, positive past payment of your financial debt does very little to impact how your score is affected. Instead, the presence and length of your bankruptcy will have more impact.
Bankruptcy on Your Credit Report
It’s commonly believed that bankruptcy will affect your credit report for ten years after your financial debt has been discharged. This is only true of a Chapter 7 bankruptcy’s public record. All the other references will only stay on for seven years.
Bankruptcy’s Affect on Your Credit Score
Most people also believe that as long as a bankruptcy is on your credit report, you’ll have a poor credit score. While it’s true that your score will be significantly lower once you file for bankruptcy, it’s also true that you can start to rebuild it immediately. With 4 or 5 years of smart credit management, you should have good credit again. Once relieved of your financial debt, you’ll want to:
- Add new credit (e.g., secured credit cards, small installment loans) to offset any negative information that’s contained within your credit report.
- Maintain under 30% utilization on all credit cards.
- Make sure you pay all your bills on time.
Bankruptcy and Your Financial Debt
Things like how much debt you have or how many creditors you owe will impact your credit score. This information (e.g., the amount of debt discharged and the proportion of negative to positive accounts) is included in your credit report. The lower these things are, the higher your score will be.
Bankruptcy and Your Credit Report
Bankruptcy helps you pay off your financial debt, but the accounts don’t disappear from your credit report. They’ll remain there, affecting your score for 7 – 10 years. Fortunately, their impact lessens over time.
Additionally, it’s important to note that you can’t discharge any federal student loans through bankruptcy. You’ll still need to find a way to pay for those.
Bankruptcy and New Credit
Many people are under the misconception that you can’t get a credit card or loan after your bankruptcy is discharged. Quite the contrary is true. One of the best ways to build your credit is to get a credit card. You may need to start with a secured credit card (one requiring an upfront security deposit), though. There are also loans available that you can get, which are also “secured” (e.g., passbook, CD, credit builder loans). Lenders are more willing to give these to people because they’re protected if you don’t pay them off. If you choose to take advantage of these ways to build up new credit, make sure that you pay them off on time.
Bankruptcy and Future Credit
Although bankruptcy will cause severe damage to your credit right now, it’ll only affect you for about ten years. Afterward, your score is both free and clear. You simply need to practice good financial habits while building stronger credit than you had before. However, before you decide to file for bankruptcy, talk to one of the attorneys at the Weller Legal Group in Clearwater, FL. They’ll help you understand how this decision will affect your credit score, so contact them today.
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