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How Will Bankruptcy Affect My Credit?

Posted on in Bankruptcy

Hudson Valley Area Bankruptcy AttorneyIf you are struggling with an excessive amount of debt and considering filing personal bankruptcy, one of your biggest concerns is likely to be the potential impact the bankruptcy will have on your credit rating. While you may have heard stories about how bankruptcy ruins your credit score and remains as a bad mark on your credit report for years to come, the truth about the actual impact of bankruptcy on your credit may surprise you.

Bankruptcy and Your Credit

Since filing bankruptcy involves discharging debts and offering creditors less than the actual amount owed, the bankruptcy obviously does have a negative impact on your credit score. However, many people in this position who worry about what a bankruptcy will look like on their credit report sometimes forget to also consider what consistently late or missing payments also do to their report.

Dealing with the issue head-on with a bankruptcy filing is less painful than struggling with the stress of making payments late or missing them completely and dealing with creditors harassing phone calls for the next few years.

How Is a Credit Score Calculated?

A person's FICO score – which stands for Fair Isaac Corporation – is calculated using several different types of information which is obtained from the three major credit reporting agencies. Each factor holds a certain percentage of weight towards that score:

  • A person’s payment history makes up 35 percent of their FICO score.

  • The amount the person owes makes up 30 percent of their FICO score.

  • The length of their credit history makes up 15 percent of their FICO score.

  • The different types of credit they have makes up 10 percent of their FICO score.

  • Any new credit they have makes up 10 percent of their FICO score.

If a person has a large amount of outstanding debt and has not made timely and consistent payments towards this debt, their FICO score will reflect that. Most bankruptcy filers already have a low score and filing for bankruptcy may drop that score by approximately 100 points.

However, using the fresh financial start that bankruptcy provides, a person can quickly begin rebuilding their credit by establishing new credit accounts and making their payments by due dates.

Many financial advisors recommend applying for a secured credit card following bankruptcy in order to help rebuild your credit. Once a person shows consistent and timely payment history, they will usually be able to apply for unsecured accounts within several months or so. This will all result in a steady to significant increase of your credit score within a year or so, compared to what it likely was when you filed for bankruptcy.

How Our Hudson Valley Area Bankruptcy Attorneys Can Help

Being deeply in debt and unable to make payments is already having a negative impact on your credit rating. To find out how filing for bankruptcy could help in your situation, call Law Offices of Robert S. Lewis, P.C. at 845-358-7100 to schedule a free consultation with a dedicated Rockland County bankruptcy attorney.  

 

Sources:

https://www.consumer.ftc.gov/articles/0150-coping-debt

https://www.investopedia.com/terms/f/ficoscore.asp

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