Bankruptcy doesn't wreck your credit for a decade
Image by Bonnie Kittle via Unsplash
You’ve probably heard the myth that filing bankruptcy ruins your credit for a decade. If you’re deep in debt and are considering Wilmington bankruptcy, you might be worried your credit will be permanently damaged. The great news is that bankruptcy will NOT tank your credit and, in fact, will help you get it back to good faster than most any other debt solution.
What’s much worse for your credit is to muddle on with ridiculous debt you can’t afford. Every month that you’re maxed out on credit cards, paying bills late, over your limits, and dealing with debt collectors, the more your score will fall. Bankruptcy isn’t an end - it’s a beginning to a brighter future with a better credit score.
How debt affects your credit score
When you’re dealing with out-of-control debt, you feel trapped. Living paycheck to paycheck, dodging collection calls, and stressing over which bills to pay and which to skip means you have no quality of life. Inescapable debt is more than just aggravating - it’s disastrous for your credit score – much more so than bankruptcy.
The primary components that make up your credit score are your payment history, credit utilization, mix of credit, new credit, and average age of credit. Together, payment history and credit utilization comprise 65% of your credit score, and these are the two most heavily affected by excessive debt. When those factors worsen each month, your credit score can plummet.
If you miss even one payment that reports monthly to the credit bureaus, such as your mortgage, auto loan, or credit cards, your score can drop up to 100 points for the first missed payment and will deteriorate from there. With credit utilization, if you’re maxing out cards, your score will drop continually so long as you've got swamped credit lines.
How bankruptcy helps your credit score
Yes, filing bankruptcy will drop your credit score one time, right after you file. But after that initial hit, bankruptcy won’t continue to drop your score. Plus, over time, bankruptcy has a lesser, not a greater impact on your credit score. Not only does bankruptcy not permanently wreck your score, but it also stops the free fall you’re probably already experiencing.
Once you get your Wilmington bankruptcy discharge, you can start rebuilding your credit score. A Federal Reserve study compared people deep in debt that chose bankruptcy versus those that muddled on without relief. While those who chose bankruptcy initially had a lower score, their credit scores boosted sharply after bankruptcy compared to those that didn’t file.
The research from the Fed found that bankruptcy filers’ credit scores improved by 40-80 points within three months after bankruptcy. The same study showed that those who chose bankruptcy rapidly gained better access to credit and were 15% more likely to be approved for new unsecured accounts after bankruptcy compared to those that didn’t file.
Rebuilding credit is a process
After you file Wilmington bankruptcy, your score will drop somewhat and then after your discharge, you can start rebuilding your credit within just a few months. Improving your credit score is not an overnight occurrence, and anyone that promises that they can boost your score fast is lying. Re-establishing credit is a matter of patience and a process.
The good news is that choosing bankruptcy for debt relief will not wreck your credit for a decade. How long it takes to rebuild your credit will vary by the individual, but bankruptcy clears your slate and gives you a fresh financial start. You don’t have to live with unmanageable debt - bankruptcy may be the best solution for your debt dilemma.
To find out more about the powerful debt relief offered by bankruptcy, contact the Law Offices of John T. Orcutt. Read reviews from recent clients then call 1-888-234-4181 to schedule a free Wilmington bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.