Does Bankruptcy Help or Hurt Your Credit Score?
Many people do not consider bankruptcy because they know that the bankruptcy will show up on their credit report for ten years following the discharge of their debts. However, in certain situations, it is worth taking a hit on your credit to gain control of your finances and, for many Americans, bankruptcy actually helps their credit in the long run.
Fear of effects on your credit score should not prevent you from considering bankruptcy to solve your financial problems. Call the experienced bankruptcy attorneys at the Ellett Law Offices in Phoenix at 602-235-9510 to discuss your options today.
How can bankruptcy help credit?
Often people who are considering bankruptcy are already behind on numerous debts, which have likely caused their credit scores to plummet. Unpaid defaults will continue to affect your score until they are paid. Bankruptcy will effectively resolve most of those defaulted debts (with some exceptions) and therefore your score could start to improve over time. Even if some debts are not dischargeable in your bankruptcy, such as student loans, discharging other debts will free up money to become current on the lingering debts.
Additionally, if a creditor sues you and obtains a judgment, that judgment will report on your credit and will negatively affect your score. If you are being sued, filing for bankruptcy in Phoenix, Arizona will stop the lawsuit from progressing due to the automatic stay1. This can help avoid a judgment from ever being issued and can save you many points on your credit score in the long run.
Will I be able to get new credit after bankruptcy?
Having a bankruptcy on your credit will likely limit your options for new credit for a period of time, however it will not nearly be for ten years. After a year or so, entities including FHA (Federal Housing Administration)2 and other creditors will likely be willing to lend to you. Though you may not qualify for the lowest possible interest rate, you will still be able to finance things like a house or a car. You may re-establish unsecured debt through a secured credit card or other similar account, which will also improve your credit score more quickly.