What Will Bankruptcy do to My Credit?
If you are faced with an overwhelming amount debt and are considering filing for bankruptcy, you may be asking yourself the question: What will bankruptcy do to my credit? This is a very legitimate concern and worth taking at. This article will address two different questions: What will bankruptcy do to my credit?, and What will happen if I do not file bankruptcy? Let’s begin with the latter.
What will happen if I do not file bankruptcy? If you are at the point where you are considering bankruptcy, you are most likely behind repaying your debts. You may have even gotten to the point where you are so overwhelmed that you have stopped paying all together. The effect of this is not only damaging to your credit score, but also dramatically increases the amount of debt you owe. The higher interest rates, late charges, and collections fees rapidly add up, making debt seem insurmountable. If a creditor chooses to file a law suit, you will be responsible for not only repaying the outstanding debt, but also covering court costs. This can quickly spin out of control. Not to mention the emotional toll of the constant phone calls and letters, and the ever present knowledge that you are in way over your head.
What will bankruptcy do to my credit? For the short term, bankruptcy has a negative impact on your credit rating. It is reported and stays on the report for seven ten years. During active bankruptcy, you cannot obtain additional credit, and after bankruptcy it is difficult to obtain credit, and when you do, interest rates are very high. However, over time, bankruptcy can actually help improve your credit score. Through secured credit cars and installment loans, you can re-establish a good credit history. You can prove that you are responsible with debt, and eventually will be able to qualify for lower interest rates. It does not happen immediately, and may take years to fully recover, but it is not the disastrous situation that many believe it to be.
While it is wise to ask the question of what will bankruptcy do to my credit, a better question may be: Will bankruptcy help me have a fresh start and achieve my goal of responsible financial behavior? Bankruptcy allows the cycle of debt to stop. It allows for a way to repay your debts, while taking back control of your finances. It stops the calls, letters, and lawsuits. It is not a cure-all decision, and is by no means one that should be made without serious consideration, but many have found it to provide the relief they are so desperately seeking.