How Does Bankruptcy Affect Your Credit?

Many people seeking relief from overwhelming credit card debt are often hesitant to file bankruptcy because of the belief that bankruptcy causes financial ruin in perpetuity.

This is simply not true. Many individuals who have filed for bankruptcy have been able to later secure an auto loan and even a mortgage.

However, filing for bankruptcy affects individuals differently. How it will affect your credit will be based on your circumstances.

Bankruptcy And Your Credit Score

It is true that your credit score will drop after you file bankruptcy. However, if you have had bills that have gone into collection or are behind on car or mortgage payments, your credit score is already likely damaged. Filing for bankruptcy is likely to cause only a modest drop in your score and allow you to rebuild your credit score.

How Long Will A Bankruptcy Stay On Your Credit?

A bankruptcy can stay on your credit report for up to 10 years. However, lenders treat bankruptcy filings differently. The type of bankruptcy you filed and the type of financing you are looking to secure post bankruptcy will determine if and when you can secure a new loan.

Many filers are able to secure credit cards shortly after filing, purchase cars and even obtain a new mortgage three to five years after filing. Filers also often purchase cars and homes while in Chapter 13 bankruptcy.

How Bankruptcy Can Actually Help Improve Your Credit Score

Many people may assume that filing for bankruptcy will hurt a credit score when, in fact, bankruptcy can actually improve it. Without bankruptcy, you are likely to continue falling behind on payments, getting deeper into debt, thus forcing a continuous drop in your credit.

With bankruptcy, you are able to regain financial footing. Your income to debt ratio normally improves. Certain debts are erased and you likely have the disposable income needed to make payment on time for important payments, like your mortgage or car loan.

Every on-time payment you make increases your credit score. A knowledgeable bankruptcy attorney can offer advice on the quickest way you can improve your credit after filing.

Schedule an appointment to meet with a lawyer today at any one of our four office locations in New Bern, Greenville, Jacksonville and Wilmington, North Carolina.

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.