Know Your Rights

Filing Bankruptcy and Your Credit Score

Filing bankruptcy is a difficult decision to make for a consumer.  Past _due _imgCommon questions you may ask yourself are:  Is bankruptcy the right decision for me?  Will I ever recover from the effects of filing?  Will it affect my credit score?  Will I be able to rebuild my credit?  If you are considering filing, the good news is, while your credit score will likely take a "hit", the negative effect is temporary and provides you with the opportunity to rebuild your credit and improve your score for the long term. 

Credit scores are based on your credit history over seven to ten year periods.  Most negative information remains on your credit file for either 7 years or 10 years depending on the type of account.  The older the information, the less it affects your score.  So after filing bankruptcy, new accounts in good standing will gradually help you rebuild your credit and improve your score.

The reality is, if bankruptcy is a potential option for you, your credit score has likely seen better days.  Often times, prior to filing bankruptcy, consumers try to work with debt settlement companies or credit repair companies to assist paying off their debts.  While these types of companies may be a good choice for you as far as getting your debts paid off, they have no control over how creditors report to credit bureaus.  So chances are, your credit is being damaged while in a debt settlement program.        

If after reviewing your credit report, you find that while you don't have any collection accounts, the majority of your accounts are past due and/or have late payments and your balances exceed your credit limits, bankruptcy may actually help your credit score.  Filing for bankruptcy gives you a clean slate bringing all of your accounts included in the filing to a zero balance.  This counterbalances the negative impact of the filing of bankruptcy in the first place. Once filing is complete, your creditors can no longer report negative information on your old delinquent accounts, driving up your score.  And as previously explained, scoring models will improve your score when you open new accounts that will remain in good standing by paying on time every month.  Make sure to review your credit report for accurate reporting of your accounts.  Accounts included in bankruptcy should be reported as paid and closed with a zero balance.  

After filing for bankruptcy, obtaining credit can often be difficult and overwhelming.  Make sure you do not fall prey to excess interest rates on credit card offers and bank loans.  Try to choose secured credit cards with more reasonable interest rates and credit building loans that you can afford so you are able to maintain your financial responsibility and increase your credit score.

SmithMarco, P.C. has been protecting consumer rights since 2005 and handles Fair Credit Reporting Act cases. If information about you is inaccurately being reported, or if you feel that you're rights have been violated, please contact us for a free case review.

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