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How Will Bankruptcy Affect My Credit Score?

Posted on Tuesday, July 1st, 2014    

Those considering Chapter 7 or Chapter 13 bankruptcy are often worried about the effect that bankruptcy will have on their credit score. Depending on what your credit score is when you file, there may not be as much damage as you think. Your current credit score will determine how much your overall credit rating is affected by the filing.

How Low Is Your Current Credit Score?

If your debt to asset ratio is high, meaning you have high debt and few assets, your credit score is already low. The resulting bankruptcy should not have a devastating effect on your already low score. Certainly, your score may drop slightly, but it will not plummet.

However, if you have a high credit score bankruptcy will certainly cause it to fall. According to FICO, the most widely-used credit scoring company in the U.S., those with good credit should expect a huge drop in their score immediately after filing for bankruptcy. This fall will be much greater than that of someone whose credit score is already low. Of course, few people who file for bankruptcy have perfect credit scores as they have often had late payments and perhaps even a repossession or collection efforts on their accounts.

Is My Credit Score Affected Differently By Different Types of Bankruptcies?

Despite the differences in the various types of bankruptcy, such as the popular Chapter 7 and Chapter 13 bankruptcy filings, there is no difference in how your credit score will be affected. However, when you are working to recover your credit score, the type of bankruptcy you filed might have an impact. For example, those who file for Chapter 13 bankruptcy will generally be looked upon more favorably by creditors. This is because Chapter 13 involves the repaying of some or all of your debt. Thus, you may appear more responsible and a lower financial risk to a creditor than someone who filed Chapter 7 bankruptcy and, most likely, repaid no debt.

Though bankruptcy will have an immediate negative affect on your credit score, it could, in the long term, improve it. If you do not file bankruptcy and continue to gather debt and not pay it back, your score will continue to fall and never improve. However, bankruptcy offers ways to handle and eliminate this debt, giving you a fresh start to begin rebuilding your credit.

There are many considerations when one is thinking of filing for bankruptcy. However, they must look beyond the creditor calls and mounting debt to determine what is the best long-term fix for their debt situation. When considering bankruptcy, speak with an experienced California bankruptcy lawyer like those at Amerio Law Firm in Sacramento. Using their years of knowledge and experience, Amerio Law Firm’s lawyers will educate you on your bankruptcy options as well as alternatives to bankruptcy that fit your unique debt case. Begin your journey to debt freedom today by contacting the Amerio Law Firm for help.

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