Filing Bankruptcy and Your Credit Score

Filing bankruptcy is a difficult decision to make for a
consumer.  Common 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.