If you are contemplating the difficult decision regarding filing bankruptcy, one of your concerns may center around bankruptcy and credit. More specifically, how will a bankruptcy filing affect your credit? This is one area that is overrun with myths concerning bankruptcy and credit. While some of these myths may have some basis in fact, others do not—and every situation is different. So, will filing for bankruptcy ruin your credit?
Bankruptcy is a “negative” entry when your credit score is being calculated, but the fact that a person filing for bankruptcy likely already has a low credit score must be factored into the equation. General wisdom says that a person with a credit score in the 700s will see that score drop by approximately 100 points following a bankruptcy filing. The “average” pre-bankruptcy filing credit score is more likely to be in the mid-500s than the 700s.
These low-scoring bankruptcy filers will generally see a significant improvement in their credit scores shortly after discharge—approximately 75 points for Chapter 13 filers, and 82 points for Chapter 7 filers, according to Lending Tree. The same Lending Tree article studied more than a million bankruptcy filing accounts, determining that more than two-thirds of customers who filed bankruptcy had credit scores of 640 or higher two years post-bankruptcy, some even sooner.
Of course, the way you choose to manage your credit following your bankruptcy will have a significant impact on how quickly your credit score will recover. If you are concerned about bankruptcy and credit, it can be beneficial to speak to a knowledgeable bankruptcy attorney from Simon Fitzgerald.
How Grace and John Dealt with Bankruptcy and Credit
Grace and John, a Shreveport couple in their mid-60s had always been responsible with their money and credit. Unfortunately, John was diagnosed with cancer, and even though the couple had health insurance, they found themselves unable to keep up with their co-pays. The couple began using credit cards to pay their medical bills, then found themselves not only drowning in medical expenses but also in high-interest credit card debt.
Grace and John were overwhelmed and unsure of what to do or where to turn. They made an appointment with a Simon Fitzgerald attorney and after discussing all their options, they determined that filing Chapter 7 bankruptcy would wipe out their medical and credit card debt and give them a fresh financial start. Grace and John felt hope for the first time in many months as they left the Simon Fitzgerald office. They were ready to take the next step and begin their road to financial recovery.
By the time their Chapter 7 bankruptcy was discharged, the couple had a Medigap insurance policy in place for John that would cover their 20 percent co-pays, and they felt like they could finally concentrate on getting John well, without constantly worrying about money. Since they had always been responsible with credit until they ran out of options, John and Grace’s credit scores rebounded fairly quickly, and they were able to get the breathing room they needed and look forward to their future once again.
What Bankruptcy Could Mean For Your Credit
Credit scores are powerful. Your credit determines whether you can buy a home, open a credit card, get a business loan, and more. If you are facing insurmountable debt, repairing your credit might seem like a distant dream.
When you feel like you are out of options, Simon Fitzgerald LLC will advocate for a new beginning for you. We have a longstanding tradition of helping clients across Louisiana overcome difficult financial problems. Our focus includes not just the bankruptcy process – but your life after it as well.
Four Things To Know About Credit And Bankruptcy
If you are considering filing for bankruptcy but you are worried about your credit, you should know the following:
- Unpaid debt will hurt your credit score when reported: Without bankruptcy, your credit score may continue to decrease if creditors report that you are not meeting necessary payments. If you and your attorney have determined that filing bankruptcy is your best choice for a fresh financial start, try to look at the situation as actually making your credit score better, albeit in a year or so. If you continue to be unable to pay your debt, your credit score will continue to decline, so bankruptcy could be the better option.
- Bankruptcy will temporarily affect your credit score: When you file for bankruptcy, credit reporting agencies will keep the event on your record for a specific period. The impact of bankruptcy could be higher or lower depending on the chapter under which you file as well as your financial habits after bankruptcy. Yes, your credit score will probably take a dip immediately after filing for bankruptcy, but remind yourself that this is temporary, and keep your eye on the eventual goal of a much better credit score.
- Bankruptcy can help you improve credit overall: Although filing for bankruptcy can lower your credit score for a while, it could still be more beneficial in the long run – both for your credit score and your life – than allowing debt to grow. Once you receive your bankruptcy discharge, you can expect to see your credit score begin to climb—and you are likely to receive many credit card offers. Choose your credit cards wisely, and only use them when you can pay the total in full at the end of the month.
- There are many strategies for rebuilding your credit: Your credit score is never permanent; it is always changing according to your financial actions. If you file for bankruptcy, you can actively work to rebuild your credit score over time. Aside from getting some much-needed financial breathing room, having your debts wiped clean can be extremely good for your emotional well-being. You may not have even realized just how constantly worried you were about the debt hanging over your head.
Filing for bankruptcy does not mean that you will never be able to get a loan again. This process could allow you to repair your financial situation so you can prepare for a better future. We can help you understand what to expect from your case.
How to Choose the Best Louisiana Bankruptcy Lawyer for Me
Your choice of bankruptcy lawyer can have a significant impact on the outcome of your bankruptcy. At Simon Fitzgerald, our attorneys are highly experienced and extremely knowledgeable regarding Louisiana bankruptcy laws. We will comprehensively assess your specific financial situation, listen to your goals, and then outline your options, helping you choose the best path to financial freedom.
We will never allow overly aggressive creditors to treat you disrespectfully just because you are going through a tough financial time. Our overarching goal is to help real people and families—just like you—get relief from their debts, keep their homes and vehicles, and get a fresh financial start. Not only will we help you through the bankruptcy process, but we will also help you create a plan to manage your future finances.
Simon Fitzgerald is the oldest bankruptcy law firm in Louisiana. Over the past five decades, we have handled more than 25,000 bankruptcies. Our attorneys offer respect and dignity to every client, while our extensive bankruptcy knowledge helps you achieve the best outcome for a difficult situation. When you make an appointment with a Simon Fitzgerald lawyer, you will find that we have nicer employees, and more knowledgeable attorneys and that we simply work harder than our competitors to come up with creative, workable solutions for every client.
Gain Customized Advice For Your Case
Our attorneys can take the time to explain the benefits and consequences of filing for bankruptcy. Call or email our offices in Shreveport / Monroe, Alexandria or Lafayette / Lake Charles to schedule a consultation. At 318-868-2600 (Shreveport / Monroe), 318-625-7505 (Alexandria) or 337-984-1584 (Lafayette / Lake Charles), our goal is to help you recover as fully as possible.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.