Many people understand that when you file for bankruptcy, it does a lot of damage to your credit score. In fact, it could cause it to drop over 200 points. Although this is true, there are still many myths surrounding bankruptcy and the exact damage it does to your credit score. If you’re considering bankruptcy, you must understand exactly how your credit score is going to be affected. For this reason, the biggest myths surrounding bankruptcy and credit scores, and the truths behind them, are below.
A Good Credit Score Before Bankruptcy Means a Better Score After
Of course, due to the fact that your credit score will drop a certain number of points after bankruptcy, there is some truth to this myth. However, the presence of any bankruptcy on your credit report will hurt it. How much your credit report is affected will depend on how long the bankruptcy has appeared on your report, not what your credit score was before filing.
A Bankruptcy Remains on Your Credit Report for 10 Years
When people talk about a bankruptcy appearing on their credit report, they think it will remain on their report for 10 years. They also believe there are no exceptions to this. The truth is, only a Chapter 7 bankruptcy remains on your credit report for 10 years. Any other form of bankruptcy, including Chapter 13, only remain on a credit report for seven years.
Your Credit Is Ruined While the Bankruptcy Remains on Your Report
Immediately after filing for bankruptcy, you will likely see your credit score plummet. Sometimes, though, it’s possible to rebuild your credit in just a year or two. In as little as a few years, a major credit reporting agency, such as TransUnion, may start scoring you better.
For this reason, after filing for bankruptcy it’s often a good idea to try and start rebuilding your credit right away. You can do this by slowly adding new credit or taking out small loans you can pay back in installments. These can help offset the negative information on your credit report. Also, make sure you make payments on time for both old and new debt.
All Bankruptcy Affects Credit Reports the Same Way
Contrary to what believers of this myth say, not all bankruptcies affect all credit reports the same way. Credit reporting agencies take a number of different factors into consideration when determining your credit score. These include the amount of debt discharged through bankruptcy and how many accounts were included in your bankruptcy. The more debt discharged, and the more accounts involved, the worse hit your credit score will take after filing for bankruptcy.
Your Credit Report Will Only Reflect the Bankruptcy
Bankruptcy does discharge your debt, which means you’ll no longer be responsible for paying it off. That doesn’t mean, unfortunately, that those debts will not continue to have consequences for you. This is because when a debt is discharged through bankruptcy, the account still remains on your credit report. These accounts are not wiped from your credit report for another seven to 10 years. While their impacts will lessen over time, any new creditors will be able to see those debts. Together, these debts and the bankruptcy will likely have a negative effect on your credit score.
Additionally, of course, any debts that weren’t discharged through bankruptcy, such as student loans, will also appear on your credit report.
You Cannot Obtain a Loan or Credit Card After Bankruptcy
Yes, bankruptcy does negatively impact your credit score. And yes, it will likely be more challenging to get a credit card or loan in the future. However, it doesn’t mean you will be barred from receiving one ever again in the future.
In fact, obtaining a credit card or loan can help rebuild your credit and offset the negative impact on your credit report. Secured credit cards are a great option. They require a security deposit and do not have high credit limits like other cards. However, you can still use them for purchases and they will still help you rebuild your credit.
There are also loans available, as well. These are secured with a deposit, similar to the upfront payment you’ll make on a secured credit card. As you pay off these loans, they will also help you rebuild your credit, also similar to secured credit cards.
Your Credit Is Forever Ruined After Bankruptcy
Again, bankruptcy does have a negative impact on your credit. However, the maximum amount of time it will have this impact is 10 years. More often, individuals can start rebuilding their credit well before that time. After bankruptcy, you can take several steps to rebuild your credit. These are not pointless and can do a lot of good for you and your credit score. There’s certainly no reason you should have to live with a bad credit score for the rest of your life.
Once the bankruptcy is off your record, or you’ve rebuilt enough credit to offset that negative impact, you can be free from the consequences of bankruptcy. If you can manage your debts and income well afterward, then your credit score may be even better than it was before bankruptcy, and perhaps even quickly, too.
Contact a Florida Bankruptcy Lawyer Who Can Help
Bankruptcy has gotten a bad reputation, and it’s largely due to the many myths surrounding it. Truthfully, though, bankruptcy is a great option for those who are struggling with significant debt and can’t find a way out of it. When filing for bankruptcy, a Fort Lauderdale bankruptcy lawyer can fully explain the process, and the impact it will have on you now, and in the future.
If you’re suffering from debt and feel as though bankruptcy might be a good option for you, don’t hesitate to contact us at Loan Lawyers. We are experienced attorneys who can help you throughout the process, explain the impacts it will have on you and your credit score, and help you to obtain that second chance you’re looking for. Call us today at (954) 523-HELP (4357) or fill out our online form for your free consultation so we can begin reviewing your case.
Loan Lawyers has helped over 5,000 South Florida homeowners and consumers with their debt problems, we have saved over 2,000 homes from foreclosure, eliminated more than $100,000,000 in mortgage principal and consumer debt, and have recovered over $10,000,000 on behalf of our clients due to bank, loan servicer, and debt collector violations. Contact us for a free consultation to see how we may be able to help you.