You’ve thought about filing for bankruptcy – but everything you’ve heard about how it may affect your credit has you scared to proceed. You’ve heard that it will ruin your credit forever.
Understanding more about the realities of the situation may alleviate your fears. It is true that bankruptcy will stay on your credit report for seven to 10 years (depending on the type of bankruptcy you file), but it won’t impact your credit forever. It probably won’t even affect you that entire time. Here’s what to consider:
Your credit is already suffering
Late payments, overextended credit, missed payments, bills in collection – all of these impact your credit score in negative ways. If you’re already juggling bills, making hard decisions about what to pay first (and what to skip) and fielding calls from creditors, your credit is already damaged.
Filing for bankruptcy offers you a chance to set things right by:
- Limiting the negative information that’s on your current credit report: Once your bankruptcy is discharged, you can obtain credit through second-chance cards, secured cards and the like and demonstrate good consumer behavior. That will gradually push your financial problems lower on the report and cause them to have less impact on yoru credit score. Many people who file bankruptcy have good credit just a year or two later.
- Improving your debt-to-income ratio: When you wipe out a lot of debt, you create a better debt-to-income ratio for your future. This can have a huge impact on your FICO score and your ability to secure everything from good interest rates to a mortgage.
Essentially, it comes down to this: Your credit score isn’t getting any better so long as you continue to be unable to pay your bills. Bankruptcy may be a stain on your credit, but the right financial moves after your discharge can make it negligible after a fairly short time. If you’ve been putting this decision off, it may be time to seek legal guidance that’s tailored to your situation.