Bankruptcy May Help, Not Hurt Credit in the Long Run
Many people falsely believe that bankruptcy ruins credit scores. In fact, bankruptcy can allow consumers to discharge debts and restore good credit in as little as a couple of years.
July 01, 2012
Many people believe that filing for bankruptcy permanently ruins credit scores and makes it impossible to obtain credit cards or home loans in the future. This is false. In fact, the experience of those who file for bankruptcy is that their credit score improves within a short period of time after completing the bankruptcy process.Bankruptcy does not automatically destroy credit scores. It's true the act of filing counts as a negative on your credit score, but the exact consequences will depend on a variety of factors. Debtors with poor credit scores to begin with may see little change in their access to credit. Some debtors may see an improvement in scores, because bankruptcy generally reboots credit reports by removing high balances, late payments and unpaid debts. These items are collapsed into a single bankruptcy entry.
After filing for bankruptcy, many consumers find their credit scores restored and even improved. In many cases, when bankruptcy successfully discharges a consumer's debt, the consumer achieves financial stability and is able to pay obligations in a timely manner. And, after 10 years, bankruptcy is removed from credit reports.
Protecting Credit
There are several steps to restoring your credit during and after the bankruptcy process. First, check that bankruptcy documents list all debts and accounts to ensure that the slate is wiped clean. Second, after bankruptcy, check the credit report to make sure all negative items are removed. Third, get a new credit card - a secured card, if necessary - and make at least one year or 18 months of timely payments. After a year or two, most auto and home lenders will credit good behavior and extend loans for major purchases.
Consumers facing mounting debt may benefit more from filing for bankruptcy than struggling to keep making payments. Filing bankruptcy can provide a fresh start and help restore consumer credit in just a few years.
An experienced bankruptcy attorney can help identify key issues and determine whether bankruptcy is the right option for your situation.
Article provided by Shaked & Posner
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