Among the many factors people consider when they debate the merits of bankruptcy is the effect it would have on their credit score. We understand the importance of one’s credit score and why it is such a concern to many. Frequently, your financially flexible – your ability to take out loans, buy a house, etc. – is directly contingent to your credit score. Therefore, many people become instinctively cautious about any major action that would directly impact their number, and rightfully so!
While we’re not advising you to forget about your credit score, you should understand that the relationship between your credit score and your bankruptcy needs is a complicated one. To put it more simply, your decision to file for a Chapter 7 or a Chapter 13 bankruptcy will likely not (and probably should not) directly hinge on whether or not it will hurt your credit score in the immediate future. If this is your situation, you may not actually need to file bankruptcy, or you’re filing bankruptcy for the wrong reasons. Bankruptcy is intended to aid those who truly cannot pay their debts to creditors, and need an alternative option to survive financially. Read our recent post to find out whether you are eligible for a bankruptcy in Iowa.
If you are eligible for bankruptcy, it’s likely that your credit score is not as healthy as you would like it to be. In this case, many individuals become worried that bankruptcy would put them further in the hole, perhaps making it impossible to ever raise their already low credit number. While it is difficult to know the exact effect a bankruptcy has on your credit score (credit scores are complicated calculations with many variables), we do know that your credit score will, unfortunately, be reduced. But this is no reason for panic! As I have already said, obsessing about your current credit score in the process of bankruptcy is focusing on a short-term negative consequence at the sake of long-term financial health.
If you are forced to consider bankruptcy, you probably have a laundry list of factors already negatively impacting your credit score. This may include large amounts of debts to various creditors, missed/late credit card or loan payments, and large balances on multiple credit cards. If you have the means to correct these problems and save your credit score, then you should do so. But if your mountain of debt is too high to conquer and creditors consistently hassle you for missed payments, then your credit score will only continue to decline. In this case, a bankruptcy may be the best option to save your credit score. By clearing your bad debts, you will have more financial freedom to pay your existing bills and create new, healthy credit. A bankruptcy stays on your credit record for ten years, but creditors may be more willing to work with you if you’ve discharged past debts and maintained a healthy credit history since your bankruptcy.
To put it simply, bankruptcy offers a fresh start, but also a long uphill climb. To regain financially trustworthiness, your actions have to speak for themselves. If you have more questions about bankruptcy and your credit score, contact Marks Law Firm at 515-276-7211 to talk to Attorney and Bankruptcy Expert Sam Marks. We offer free consultations on your schedule, so call us soon!