Good credit can only be established through an on-time and in-full payment history. For many who are currently struggling with debt and financial instability, chances are that they have already experienced some credit repercussions and damage to their credit score. While bankruptcy remains on one’s credit report for ten years, consumers are frequently surprised to find out how bankruptcy affects their credit, and it’s not in the negative way they previously thought. There are numerous tangible benefits to filing for bankruptcy, and one of them is how much easier it becomes to rebuild one’s credit following a bankruptcy discharge.
Bankruptcy Consequences and Benefits
Bankruptcy, as either Chapter 7 or Chapter 13, can benefit those who face nearly insurmountable debt. While it can be a potential option for many, consumers should understand that bankruptcy will more significantly compromise credit scores than debt settlement. Generally, bankruptcy should be used as a last resort. If a person has no other way of settling their debts, bankruptcy may be the best option.
The more time that passes once your bankruptcy is over, the less important your bankruptcy will be to creditors that are considering giving you credit. This assumes, of course, that you have done a good job of managing any new credit you may have been approved for since the bankruptcy ended. It is also important to consider that while your credit reports will show that you filed bankruptcy, they will also show that you are debt free, a fact that will be attractive to creditors.
You can also end up with a higher credit score after your bankruptcy is over. Prior to filing, your credit score is calculated by comparing your credit history to the credit histories of other people in the general population; but once your bankruptcy is over, your credit score is determined by comparing your credit history to the credit histories of other people who filed bankruptcy. So, if you are able to successfully manage your finances after bankruptcy, your credit score will likely rise. However, this fact alone does not always mean bankruptcy is an appropriate option for everyone.
Rebuilding Your Credit and Future
It is important to understand that while bankruptcy poses consequences to your credit, they are not permanent. Your credit will take an initial hit after you file for bankruptcy, but it can recover. You can begin to reestablish your credit immediately and can gain confidence and satisfaction knowing that you can better chart your finances and manage your economic health. Many clients we’ve worked with also made the decision to use low-limit or pre-paid credit cards as a way to safely rebuild their credit during the initial stages after their bankruptcy. You may also find that creditors and potential lenders will view credit differently. These are matters of discretion and do not automatically rule you out from obtaining loans in the future. Some helpful hints for rebuilding your credit include:
- Take it slow; rebuilding credit is not an overnight process
- Know what your credit score says by obtaining a free credit report regularly
- Address and resolve problems that arise
- Start saving
- Apply for credit and use it responsibly
Ultimately, bankruptcy can allow you to improve and strengthen your credit and to eventually establish a credit score much higher than what you previously had during the period before you filed. This is not automatic or guaranteed, however, and can only be accomplished through well informed financial planning and responsible credit behavior.
Contact a San Antonio Bankruptcy Attorney Today
Regardless of the consequences bankruptcy poses to your credit, there are many benefits that can outweigh temporary credit repercussions. When all is said and done, filing for bankruptcy can be a step toward a more financially sound future, and is a much stronger option than facing the risks of doing nothing about your debt.
My firm is fully prepared to evaluate your case and help you understand the potential effects bankruptcy can have on your credit. We also go to great lengths to provide you with the information, tools and strategies you need to establish and maintain solid credit and financial stability that lasts a lifetime. Contact my firm to learn how we can be of assistance.