Many people who are considering filing for bankruptcy worry about how bankruptcy
will affect their credit. Among the top concerns are whether it cause
permanent damage or whether a person will ever be able to borrow money
or have a credit card ever again. Fortunately, there is no reason to worry.
While bankruptcy may affect your credit in the short run, it is a long-term
debt solution that can help you regain your financial freedom, establish
healthy financial practices, and rebuild your credit instead of continuing
to flounder in debt.
First off, it is important to understand the difference between “credit”
and your “credit report.” Credit is your ability to borrow
money, while your credit report is a summary of your credit and payment
history. Filing for bankruptcy, either under Chapter 7 or Chapter 13,
will have an effect on your credit score and will remain on your credit
report for up to 10 years. The overall effect on your credit score will
depend on what your score was before filing. If it was already low, the
dip in score will be much more modest than if you had good credit.
While it is true that your credit will take a temporary hit, the good news
is that the effects are not permanent. Because bankruptcy gives you a
fresh financial start, you have an opportunity to rebuild your credit
by making timely payments and gradually reducing your debt-to-income ratio.
By keeping your debt load low, getting a credit card and using it responsibly,
and paying off credit card balances monthly, your credit score will gradually
start to rebuild.
If you have further questions about filing for bankruptcy, we encourage
you to get in touch with a Sherman Oaks bankruptcy attorney at Wadhwani
& Shanfeld. Over-the-phone consultations are free of charge.