One of the prime reasons that many people decide not to file for bankruptcy protection is a perceived harmful impact on their credit. Why perceived? It is true, a bankruptcy will stay on your credit report for 10 years. Nevertheless, not filing bankruptcy will allow your debts to grow, become charged off, and be sent to a collection agency. The fact is, despite the consequences of filing a bankruptcy, it will often improve a person’s credit situation, not harm it.
While lenders and creditors don’t like seeing a bankruptcy on an applicant’s credit report, whether or not it will actually cause any real harm to your credit score will depend on your credit before filing. If you have many delinquent accounts, and few assets compared to your debts, your credit score is already significantly damaged. Immediately after filing a bankruptcy, your score may experience a modest dip, but it gives you a clean slate to begin rebuilding starting in six months.
While it cannot be said that a bankruptcy will immediately increase your credit score, for many it is the fastest way to improve it. You must consider the fact that you are likely already behind in your payments and falling farther behind every day. A bankruptcy can wipe out those debts, giving you a fresh start. You will immediately get your finances under control and focus on taking the needed steps to rebuild your credit. Without a bankruptcy, you will continue to struggle with late payments and defaulting on accounts. The amount of your debt will continue to grow, and your credit score will never improve.
Today’s article discussed the impact of a bankruptcy on your credit score. While a bankruptcy does stay on your report for 10 years, it is an opportunity for a fresh start. In fact, depending on your current credit situation, a bankruptcy is likely your best bet to improve your situation.
Do you need more information? What haven’t we covered yet that is important to you? If you would like to talk about how a bankruptcy will affect your credit, or a related topic, please contact us.