When you think of bankruptcy, what comes to mind? For most people, bankruptcy is a very dirty word. According to the U.S. Bankruptcy Court the bankruptcy rate has seen a decline every month for the last quarter of 2013, however bankruptcy is still inevitable for many Americans. The average American assumes that filing bankruptcy will always result n a poor credit score for at least ten years. There are a lot of myths associated with filing bankruptcy.
But did you know that filing bankruptcy can actually increase your credit score?
Those who file bankruptcy already have a history of late or missed payments. There are usually several delinquent accounts in collections as well. This means that there is a probably already a low credit score. Bankruptcy can work to rebuild your credit over time.
The first thing to understand is that if you are considering filing for bankruptcy, your score is probably already low. Generally, in order to be eligible for bankruptcy, you have to carry a certain amount of debt. Many consumers are able to improve their credit score within a year or two of filing bankruptcy.
If bankruptcy doesn’t lower your credit score, then what does it do?
- Bankruptcy eliminates your legal responsibility to pay off certain debts. This “discharge” can be beneficial in certain cases and can stop the foreclosures and repossessions.
- Bankruptcy allows an individual to catch up on loans and other bills.
- Bankruptcy can stop your wages from being garnished and stop collection agencies from harassing you.
- Periodically look at your credit report and dispute any fraudulent charges. Everyone is at risk of identity theft. Now that you have filed bankruptcy, be sure to remain vigilant in checking your credit report.
- Be aware of your current credit score. You should check your credit score every month or so to stay abreast of any changes. When applying for credit, a creditor will check your score—this could cause your score to go down, so make sure you take your time in applying for new cards. Be careful in the types of cards you apply for and be sure to follow up the application process by checking your credit score.
- Try to pay all of your bills on time. This is an essential step to continuing to rebuild your credit after filing bankruptcy. You want to avoid putting yourself in another financial crisis. Paying your bills on time can help you start to establish a strong credit history and keep you on the road to financial recovery.
- Avoid any of those “quick fix” credit repair services. Rebuilding your credit takes time. Don’t be fooled by companies that claim to be able to fix your credit overnight. There is nothing wrong with repairing your credit slowly at your own pace.
- Spend within your limit. Having a budget will help ensure that you are able to keep up with your financial responsibilities. Spending within your limit means that you won’t have to worry about overexerting your wallet. If you spend within your limit, you can be in a better position to deal with unexpected expenses or even pay more than the required minimum payments on any bills, which may allow you to build up your credit faster after filing bankruptcy. If you are able to stick to a budget, you can put yourself in a great position to improve your credit score.
If you are still unsure about whether you qualify for bankruptcy or if you have questions regarding how filing bankruptcy might impact your credit score, it would be beneficial to find a bankruptcy attorney that is reputable in your state as many offer a free, confidential consultation.
By Todd D. Beauregard