Can Bankruptcy Affect My Credit Score?
Bankruptcy can help you get a much better handle on your finances, get out from under crushing debt, and obtain a new financial lease on life, but it can also negatively affect your credit score. The benefits that bankruptcy can afford in a difficult financial situation, however, can far outweigh this downside. If you are considering bankruptcy, an experienced Port St. Lucie bankruptcy attorney can help you protect your finances throughout the process while also helping you better understand how to mitigate the hit your credit score takes.
Chapter 7 vs. Chapter 13 Bankruptcy
Both chapter 7 and chapter 13 bankruptcy will negatively impact your credit score. Consider the following:
- A Chapter 7 bankruptcy is a process in which you liquidate specific assets in order to discharge debt, and it remains on your credit reports, which determine your credit score, for 10 years.
- A Chapter 13 bankruptcy is a process in which you reorganize your debt and pay a portion of it back over 3 to 5 years. A chapter 13 bankruptcy remains on your credit reports for 7 years.
While bankruptcy remains on your credit for many years, it will likely only effect your score for 18 months.
Lenders can see a bankruptcy on your credit reports, and they’ll make decisions regarding your financial requests accordingly. For example, if you are able to obtain a loan or a line of credit, the fact of your bankruptcy may significantly increase the interest rate.
Building Back Your Credit Score
Sometimes, bankruptcy is a necessary financial reset. While there are negative ramifications, they don’t negate the fact that the bankruptcy process can help you find more solid financial ground that will support your financial stability moving forward. Fortunately, there are things you can do to help you strengthen your credit score along the way, including:
- Paying attention to your credit score, which helps to ensure that it is moving in the right direction and allows you to monitor for any issues that may arise
- Paying your bills on time, which is the best way to shore up your financial standing and your credit score, while helping you avoid costly fees and interest
- Making a budget, sticking to it, and making overspending a thing of the past
- Rebuilding your credit by obtaining a secured credit card, which is backed by your deposit, and demonstrating that you have what it takes to handle credit responsibly
Another important factor when it comes to rebuilding your credit is understanding the factors that directly affect your score, including:
- A history of making timely payments
- A low ratio of credit use in relation to overall credit availability
Discuss Your Financial Concerns with an Experienced Port St. Lucie Bankruptcy Attorney Today
Brian McMahon at Brian K. McMahon, P.A., is an accomplished Port St. Lucie bankruptcy attorney with more than 30 years of focused experience helping valued clients like you obtain the legal help they need to reach their financial goals. If you’re ready to learn more, please don’t delay reaching out and contacting us online or calling us at 561-658-1789 today.