Bankruptcy's Effects on Your Credit

What impact will bankruptcy have on my credit score?

For many people who are considering declaring bankruptcy, the number one concern which holds them back from taking action to get themselves out of debt has to do with their credit score. They have heard that filing for bankruptcy will utterly ruin their credit and thereby make it impossible to take out a loan in the future to purchase a new car or to buy a home. While this is a valid concern, it is usually exaggerated in comparison with the reality of the situation. Bankruptcy does have a negative impact on an individual’s credit score, but it is not a devastating one. Perhaps most importantly, it is not permanent: Chapter 13 bankruptcy is removed from one’s credit report after only 7 years, while a Chapter 7 or Chapter 11 bankruptcy will disappear after 10 years.

There is no way to predict with accuracy how much of a hit your credit score will take when you declare bankruptcy, but the general rule is that the higher the score is to begin with, the greater will be the drop. This is good news for most people who file for bankruptcy, since their credit score is normally already suffering from a high debt-to-income ratio, reports of late payment and bad debts that have been charged off. Another important thing to know about credit after bankruptcy is that the FICO score – the score that is most widely used in determining a person’s creditworthiness – is based off of a comparison with others in similar financial circumstances, so your credit will be calculated by comparing you to other people who have declared bankruptcy, rather than with people with impeccable borrowing histories.

Why You Shouldn’t Let Credit Concerns Stop You from Filing

One of the most surprising aspects of the effect that bankruptcy has on an individual’s credit is that in some cases the score will actually improve. If your credit score has been majorly suppressed by high-balance loans, missed payments and unpaid debts, the fact that these will be removed from your credit report may result in a rise in the score, however slight it may be. Regardless of whether your score improves or decreases, the most important thing is that you will now be able to enjoy the benefits of life after bankruptcy, which include having more money available to afford your living expenses and being free from the constant stress and anxiety of owing more than you can afford to pay back. Don’t let concerns over your credit report restrain you from taking effective action now to get out of debt: If you continue struggling under an unsustainable burden of debt, then your credit is likely to suffer regardless. Contact The Law Offices of Justin McMurray, P.A. now for help from an Ocala bankruptcy lawyer from our team.