The short answer is no it will not ruin your credit but the longer answer is that yes it will affect your credit for a long period of time. How it affects your credit depends on your credit when you file the bankruptcy.
As bad as bankruptcy is, it doesn’t leave a lifelong black mark on your finances, but restoring your financial good name takes effort as well as time. It wipes away or reduces debt that you can’t afford to pay, but it tells the world that you’re a credit risk. That gets reflected on to your credit score, which can drop dramatically and make it tough to borrow and spend.
However, many people considering filing for bankruptcy already have low scores. In those cases, bankruptcy can actually increase your credit score. This happens because filing for bankruptcy can actually clear negative items from your credit report – leaving only the bankruptcy itself as a negative remark. The bankruptcy will be reflected on your credit score for as long as 7-to-10 years depending on the type of bankruptcy you enter. But you can take immediate steps to begin restoring your creditworthiness. It’s worth noting that even though the bankruptcy may be noted on your credit report for 7 to 10 years, it doesn’t necessarily impact your ability to obtain credit that entire time.
An assortment of negatives can lower your score, including tardiness in paying bills, using too much of your available credit line, loan defaults, loans that enter collection and, worst of all, bankruptcy. A bankruptcy will lower the score tremendously, and the better your score was before you file, the more it will drop when the bankruptcy order is entered. How much your score falls, and how quickly it recovers, has a lot to do with how you manage your money and your credit. Though the bankruptcy remains a negative on your credit report until it’s removed, you can begin seeing improvement if you make the right moves. Our bankruptcy lawyer in Birmingham can help advise you after the case is over how to rebuild your credit, especially after a Chapter 7 bankruptcy.
A person with an average 680 score would lose between 130 and 150 points in bankruptcy. Someone with an above-average 780 score would lose between 200 and 240 points. On the other hand, if your score is in the 400s or 500s when you file, it’s possible that your score may experience a boost from the bankruptcy filing. People in this score range have seen credit score boosts as high as 50 points after filing for bankruptcy.
Some steps to help you rebuild your credit include:
- When you receive a legitimate bill for anything, pay it before the due date.
- Open a secured credit card account.
Monitor your credit score monthly. If you use credit responsibly and pay bills on time, your score gradually will rise.
Attorney Steven A. Harris regularly blogs in the areas of family law, bankruptcy, and real estate closings on this website. He is always available in any of the firm’s offices or by phone anytime for a consultation. Mr. Harris tries to provide informative information to the public in easily digestible formats. Hopefully you enjoyed this article and feel free to supply any feedback. We appreciate our readers and love to hear from you!