When we find ourselves in a situation where we are considering bankruptcy, it is usually our last option we consider. We may have been experiencing financial difficulties for quite some time and it doesn’t matter how hard we try, we just can’t seem to dig our way out of it. It seems as if bankruptcy is the best option to hit the reset button and to give us a fresh chance at life. There are often questions that are asked about filing bankruptcy, which are best to ask a bankruptcy lawyer. And the following article is not intended as legal advice. We’ll just look at the topic of bankruptcy and how it will affect us, including how it will affect your credit score.
Avoiding Bankruptcy for Fear of Effect on Your Credit
Bankruptcy would almost seem like the easy way out, but most people are afraid of the effect that filing bankruptcy is going to have on their credit. You really need to take a look at the bigger picture, however, and decide if it is the best option for you and whether you are doing yourself any justice by not filing for bankruptcy. It is often necessary to crunch the numbers and sometimes, it is best if you get a professional involved in the process. They can help you to make the right decision and choose the best course of action for your personal needs.
As far as your credit score is concerned, bankruptcy is going to stay on your credit report for quite some time. That time may vary to a certain extent but for the most part, you can expect for it to stick around on your credit report for as much as 10 years. In addition, if you still have any credit left, it is going to be seriously hurt by filing bankruptcy and you will see your numbers drop significantly. That is only one part of the equation, however, and there are other things to consider.
First of all, if you are having a serious financial difficulty and find yourself wanting to file bankruptcy, you are likely already harming your credit score. You might be falling behind on your payments and if you aren’t now, you could end up falling behind in the not so distant future. There is no doubt that it can have an impact on your credit and it will continuously go down. As soon as you hit this type of downward spiral, it is very difficult to get out of it and you only find that your credit score is getting worse.
Effects Can Be Temporary
In addition, you might find that the amount that your credit score drops when you file for bankruptcy is really only a temporary issue. In many cases, you can begin requesting new credit cards immediately after the bankruptcy has been settled. Admittedly, you’re not going to get the serious credit card offers that you may have if you have an extremely high credit score, but you are still going to have the opportunity to build your credit.
So, how much will your credit score drop when you file for bankruptcy? In most cases, it will drop anywhere from 160 up to 220 points. If you have a good credit rating, it is going to take it down to the point where it is considered to be a poor credit rating. Most lenders are not going to extend you credit when you have a poor credit rating, so you may have a difficulty if you want to buy a home or a car. As we said, however, there may be options available for credit cards or you can get a secured credit card, which is similar.
Which Type of Bankruptcy Will You File?
You also need to consider the type of bankruptcy that you file. Chapter 13 bankruptcy is relatively common, and it will stay on your credit report for up to seven years. The benefit is the fact that it will discharge that on your credit report and if you are on a 3 or 5-year repayment plan, you may get out from underneath the debt prior to that time. Chapter 7 bankruptcy tends to stay on the credit report even longer and maybe there for 10 years. It has the benefit of discharging all of the unsecured debt that you have.
As you can tell, there is a lot to think about when you decide to file bankruptcy. It isn’t just a matter of your credit score, it is a matter of your available credit. Make sure you talk to a professional before you make the decision.