Filing for bankruptcy is a significant life event that can have a devastating impact on your credit score. For some people facing serious financial difficulties, however, bankruptcy is the best option for paying off debts, obtaining financial relief, and getting a new start at building a good credit score. Despite the advantages of bankruptcy, there are still a number of myths held by people about what exactly bankruptcy entails. The following will take a closer look at some of the most common myths that people have about the bankruptcy process.
Myth 1: Your Credit Score Increases Slightly After Bankruptcy
In reality, an absence of negative information on your credit report will do little to minimize the impact of a bankruptcy will have on your credit score. Your score will dip immediately following your bankruptcy filing. Time and consistent managing of your debt payments moving forward will be the deciding factor in your credit score and how quickly it improves.
Myth 2: All Bankruptcy Details Remain on Record for 10 Years
This is partially true. Only a public bankruptcy record for Chapter 7 will remain on your credit report for 10 years. Other bankruptcy references, however, will remain on your credit report for just seven years, which includes third-party collection debts and Chapter 13 public record items. After these records are no longer available, many people discover that their credit score increases substantially.
Myth 3: You Will Have Poor Credit as Long as Bankruptcy Info Remains
It is true that you will likely experience a significantly lower credit score after filing for bankruptcy, but you can begin to rebuild your credit score through proper credit utilization, as well. Several years after filing bankruptcy, some people discover that they are able to achieve a credit score in the “good” range between 700 to 750. Some of the steps that a person can take to improve his or her credit score are to add new credit by obtaining secured credit cards or small investment loans, making on-time payments for old and new debt, and keeping credit card balances under a 30% utilization rate.
Myth 4: Bankruptcy Affects the Credit Score of All Consumers Equally
Bankruptcy affects the credit score of different consumers in different ways. If a person has a low amount of debt and only a few accounts involved with his or her bankruptcy, it is likely that his or her credit score will end up higher than another person who pursued a more severe form of bankruptcy.
Myth 5: All Details About the Bankruptcy Will Leave Your Credit Report
Bankruptcy has the potential to help a person erase prior debts, but details about these accounts will not leave a person’s credit report. Instead, all bankruptcy-related details will remain on your credit report and will influence your credit score for a period of seven to 10 years.
Speak with an Experienced Bankruptcy Lawyer
There are a number of complex issues that can arise while navigating the bankruptcy process. If you have decided that pursuing bankruptcy is the best option for you, speak with an experienced attorney today. Contact the Adam Law Group to schedule an initial free consultation.