When debt becomes smothering and overwhelming, calls from creditors haunt your dreams and you cannot see a way out of the financial situation you are in, bankruptcy can provide hope for a brighter financial future, no matter where you start.
Many fear the stigma attached to bankruptcy and the way the process can negatively affect their credit. It is a common myth that credit will never be the same after bankruptcy, but with the right effort, you can repair your credit and minimize the negative effects of bankruptcy so you can enjoy the lightened load that comes from successfully handling your debts.
Expect lower scores, but not forever
Filing for bankruptcy can affect your credit, staying on your report for anywhere from seven to 10 years. However, if you plan correctly and are smart about borrowing and paying your bills, you could build your credit score back up to over 700 in just four to five years. Make all payments on time, maintain low balances on your credit cards and add positive credit such as installment loans or secured credit cards.
New account application can lower your credit score
After bankruptcy, you may be tempted to open new credit cards or take out new loans to help build your credit. Keep in mind that close to 10 percent of the total credit score is determined by recent applications for credit. You will want to add good credit to your score, but spread your applications out as much as possible over time.
Different bankruptcy, different effect
Chapter 7 bankruptcy allows you to discharge your debts just a few months after filing, but Chapter 13 bankruptcy may hang around a little longer as you will likely set up a repayment plan that lasts three to five years. The effect to your credit score will be virtually the same with either of these types of bankruptcy.
Is filing for bankruptcy the best option for you?
Discharging debt is a valuable option for many who deal with debts they simply cannot pay, but you should seek the advice of a professional before deciding what is right for you. If you are considering bankruptcy, discuss your options with an attorney.