Afraid your credit score will never recover if you choose to file bankruptcy? You’re not alone. As Philadelphia bankruptcy attorneys, we hear this fear a lot.
The amount of misinformation out there doesn’t help.
But believe it or not, you don’t have anything to be afraid of. Bankruptcy actually improves most people’s credit score. Here’s why.
If you’re in deep financial trouble your credit report is likely to contain some of the following items:
- Dozens of open accounts bearing a litany of late or missed payments.
- Dozens of accounts which have been sent on to collection agencies.
- If most of your accounts are credit card accounts, many will be at or over their limit.
Each of these items hits your credit score separately. You’re taking hits for each account with late payments, each account sent to collections and for your credit use, which is now well over 30% of your available lines of credit. Keeping your credit use at 30% or below is the healthiest for your score.
When your bankruptcy case is finished all those balances will be reduced to zero. All the collection accounts will be marked as “resolved.” The late payment histories will disappear. The individual entries will all say “legally discharged through bankruptcy,” but the number of accounts resolved this way does not matter. You’ll have exactly one hit on your credit report. The bankruptcy itself, recorded in the public records section of your credit report, will have an impact on your score into the future.
But in the short term your score could go up by 50 points or more almost immediately. You’re not going to have an 800 right away, and the actual score you receive will certainly depend on your current credit score, but it will be higher than it was. It will be up to you to build on that foundation.
Some people eventually manage an 820 credit score after bankruptcy. Your life is not over because you file.
Note your bankruptcy’s impact on your score will decrease as the bankruptcy gets older, especially as you open new lines of credit. As long as you keep up with any payments you take on you should be able to rebuild your score over time.
Most of our clients find they don’t have any trouble securing new lines of credit after their discharge. Indeed, most start receiving unsecured credit card offers and auto loan offers as early as the day after the discharge.
Just be careful which offers you accept. Creditors are eager to “help you start over” because they know you may not receive a discharge in Chapter 13 within another 4 years and for a Chapter 7 another 8 years. This tells them they are likely to get their money from you one way or another if they need to…which may not be an ideal situation if you accept credit from someone predatory.
Got other fears about filing for bankruptcy? You don’t have to face this alone. Get all your questions answered in person by scheduling a free consultation today. We’ll be happy to discuss how we can work with you to change your financial situation for the better.