How Bankruptcy Can Actually Improve Your Credit Score – 5 Things to Consider

How Bankruptcy Can Actually Improve Your Credit Score – 5 Things to Consider

Submitted by Rachel R on Mon, 01/04/2016 - 9:14am

How Bankruptcy Can Actually Improve Your Credit Score – 5 Things to Consider

Bankruptcy can help your credit score - surprised?

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If you’re struggling with debt, paying bills late, maxed out on your credit cards and living paycheck to paycheck, your credit score is already suffering. In fact, it’s probably getting worse every month. Yet most people think that filing bankruptcy means their credit score will tank. If you’re at the point that you’re considering bankruptcy, your credit score is likely already on the downslide and, surprisingly, bankruptcy can be what saves it. Here are some things to consider…

#1 Bankruptcy doesn’t wreck your credit for years

Many people think that just because bankruptcy stays on your credit report for 10 years that it will drag your credit down that whole time. That’s just not true. Realistically, if you make the most of the fresh financial start that bankruptcy offers, it can change your life, get you out of unmanageable debt and let you improve your score rapidly.

#2 After bankruptcy, you can have excellent credit in a year (or close to)

Depending on what your score was before you file and what steps you take after your discharge, you can have an impressive credit score re-established within a year or two. Chapter 7 can clear out your debts and free up your money. Paying your bills on time and starting with a secured card then unsecured card and taking deliberate steps can rebound your score quickly.

#3 Debt negotiation and debt consolidation wreck your credit

If you’re struggling to pay your bills and realize you can’t keep the pace, you may consider a debt consolidation or credit counseling repayment plan to help out. The problem is, these plans often wreck your credit for the entire time you’re in them – which can be two to three years. This is because you must stop paying your creditors and pay into the plan which means negative items on your report.

#4 Doing nothing and wallowing won’t help

When people get into a financial crisis, sometimes they act like a deer in the headlights and freeze up, unsure what to do next. Living paycheck to paycheck, paying bills late, maxing out cards and only paying minimums means your credit score will continue to drop, drop, drop. Doing nothing is not a solution and will make everything worse.

#5 Bankruptcy gives you a clean slate to rebuild your credit ASAP

If you’re deep in debt and running late on bills and maxed out on your credit cards, your credit score will drop every month, and it can be nearly impossible to dig out. Chapter 7 bankruptcy, by comparison, gets rid of your unsecured debts including medical bills, credit card debts and some older income tax debt. With a clean slate, you can manage your money more wisely and start rebuilding your FICO score.

Bankruptcy is not the right solution for everyone, but for many people it may be the best way to get your finances on the right track. If you’re not sure whether your financial circumstances are dire enough to warrant bankruptcy, why not talk to an experienced bankruptcy attorney?

Initial consultations are free, and you can bring in your bills, income information and other financial data and sit down with an attorney. They can explain to you what Chapter 13 could do for you and what Chapter 7 could do for you and see which plan you may qualify for – and advise you on next steps.

If you do decide that Chapter 7 or 13 is the best option, it’s critical that you focus on rebuilding your credit after your bankruptcy, so you make the most of your fresh financial start. If you live in NC, contact the Law Offices of John T. Orcutt for a free consultation. Call +1-919-646-2654 to schedule a free North Carolina bankruptcy consultation at one of our convenient locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.

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