Think You Need to Avoid Bankruptcy to Save Your Credit? Think Again. If You're Buried in Debt, Bankruptcy Could Actually Improve Your Credit.

Are you buried in debt and trying to figure out what to do about it? Perhaps you've toyed with the idea of filing bankruptcy. You've heard about it, and the idea of getting rid of most or all of your debt is tempting. But maybe you're concerned about walking away from your responsibilities, or "ruining" your credit. So, you think you should just do whatever's necessary to keep paying your bills, even if it means you have struggle to make ends meet, or worry about losing your car or your home. But the reality is, for many people buried in debt, filing bankruptcy may actually be the most responsible thing to do under the circumstances, and the best way to protect your credit in the long run.

Your credit score is based upon an analysis of five factors, each assigned a different weight: (1) Payment History (35%); (2) Amounts Owed (30%); (3) Length of Credit History (10%); (4) New Credit (10%); and (5) Type of Credit Used (10%). So, the two most important factors behind a good credit rating are your history of payments -“ whether you've stayed current or fallen behind on your debts -“ and how much you actually owe to your creditors. If you've regularly been struggling to pay your bills, chances are you've racked up high amounts of debt and have already fallen behind on your payments. Your credit has already been damaged, and the longer you continue to carry debts you simply can't afford, the worse it is likely to get. From a credit perspective, then, you have little or nothing to lose in filing bankruptcy. In fact, your credit is likely of no use to you, because potential creditors probably won't be willing to issue you new loans or new credit.

If you file a Chapter 7 bankruptcy, you can wipe out many of these burdensome debts, including credit card debt and medical bills. This will not only make your life a lot more manageable, it will make you more attractive to potential creditors, because now you can afford to pay them back. While the bankruptcy will be reported on your credit for up to 10 years and you may have to pay higher interest rates for the first few years, you can start rebuilding your credit immediately.

Most Chapter 7 cases can be completed in as little as six months, and once it's over, you can make a fresh start. You will have significantly reduced -“ or completely eliminated -“ the amount of debt that you owe, and you will be able to re-establish a good track record of payments. This is the purpose behind the bankruptcy laws. And, again, lowering the amount of debt that you owe and making timely payments are the two most important things you can do to establish and maintain good credit.

So, if you're buried in debt and falling further and further behind, call a bankruptcy attorney and consider filing bankruptcy. It could be the most responsible thing to do in the long run -“ for yourself and your credit.