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  • Writer's pictureDaniel Rodriguez

How Much Does Filing for Bankruptcy Affect Your Credit Score?

There are countless reasons to file for bankruptcy, including overwhelming credit card bills, unforeseen medical expenses, or a scheduled foreclosure sale. There are also some reasons why you should not file for bankruptcy, such as too much non-exempt equity in your personal or real property. However, when weighing the pros and cons of filing for bankruptcy, many people will cite the negative impact of bankruptcy on their credit score.

Bankruptcy will negatively impact your credit score. This impact is often temporary. It was not designed as a punishment. California bankruptcy filers are afforded a clean slate and a fresh start to rebuild.

Bankruptcy is the first step in a longer process. Once you have eliminated your debt or addressed your secured arrears, it is time to start rebuilding your credit score. The experienced Roseville bankruptcy lawyers at The Bankruptcy Group are available to assist you during both phases. Call 1-800-920-5351 to discuss your post-bankruptcy options.

Will Filing for Bankruptcy Increase My Credit Score?

It is challenging to estimate the exact impact filing for bankruptcy will have on your credit score because the various credit bureaus do not publicize their formulas. However, one thing is certain. Your score will go down – at least for the short term. If you have a high credit score, perhaps you have been making minimum payments on credit card balances for years, you will likely take a more significant hit. If your credit score was already low, filing for bankruptcy will probably not impact it as drastically.

When you are considering the pros and cons of filing for bankruptcy, the short-term effect on your credit score should not be a determining factor. If you are barely keeping your head above water or are facing foreclosure, your current credit score should not be a major concern. Our Orange County bankruptcy attorneys will work with you to weigh the disadvantages and advantages of filing.

How Bankruptcy Can Increase Your Credit Score

Bankruptcy will hurt your credit score. It is important to remember that this impact, while immediate, is temporary. Your credit score is calculated by combining many different factors. For example, the credit bureaus and lenders will often look at your debt-to-income ratio. If you discharge a significant amount of unsecured debt through a Chapter 7 bankruptcy, your debt-to-income ratio will improve.

Furthermore, delinquent and charged-off accounts will be removed from your credit report. Bankruptcy might be a negative mark on your credit report. However, it removes numerous other negative entries. Our Folsom, CA bankruptcy lawyers will review your credit report with you, so you will understand how filing could impact your unique situation.

Long-Term Positive Effects of Bankruptcy on Your Credit Score

Bankruptcy is designed to provide a California debtor with a fresh financial start. If you filed a Chapter 7 case, you most likely eliminated a significant amount of unsecured debt, including credit card bills, old medical charges, and utility bills. Then again, if you filed a Chapter 13 bankruptcy, you might have paid off a mortgage delinquency or the arrears on your vehicle. These positive changes will put you in a position to be better off financially as time moves forward.

This does not mean that filing for bankruptcy will cure all your economic woes. What it does do is present a debtor with a clean slate. Filing for bankruptcy will eliminate delinquent accounts, late payments, high credit balances, and other items that negatively impact your credit score. Now, you have the ability to start from scratch, building your credit score up without the anchors that were weighing you down before you filed for bankruptcy. To learn more about the long-term positive effects of filing for bankruptcy, contact our knowledgeable Sacramento bankruptcy lawyers at The Bankruptcy Group.

How do I Improve My Credit Score After Bankruptcy?

Now that you have successfully completed your bankruptcy, you have a clean slate to start building and improving your credit score. However, what steps could you take?

The first important thing to do is budget. You should not start taking on new debt just because you can. If you apply for a credit card and start falling behind on the payments or miss a mortgage payment or two, your credit score will start plummeting. Furthermore, you could quickly find yourself in the same place you were in before you decided to file for bankruptcy. However, there are some proactive steps you could take to improve your credit score.

Secured Credit Card

One of the first things our experienced California bankruptcy attorneys will advise you to do is to apply for a secured credit card. These cards function similarly to ordinary credit cards. However, you must keep an account balance to cover the credit limit. If you use the card and make regular payments, it will positively impact your credit score.

Authorized User on a Credit Card

Another way to increase your credit score is to be listed as an authorized user on another person’s credit card. You want to ensure that the primary user has a good payment history and that the credit company reports authorized users to the various credit bureaus. This option requires a good deal of trust.

Reaffirm Secured Debts

If you have a secured debt that survived bankruptcy, you could consider reaffirming the debt. A reaffirmation agreement is usually entered into if you have a car loan. Without the reaffirmation agreement, a car lender will not report any payments because your personal obligation under the original loan has been discharged. When you reaffirm the debt, you are taking personal and legal responsibility for the remaining. If you do not reaffirm a car loan, it does not mean you do not have to make your payments. The only recourse a car lender has is to repossess the vehicle – they are prohibited from suing you for any remaining delinquency if the car sells for less than what is owed. However, any payments made will not be reported to the various bureaus.

Call Our California Bankruptcy Lawyers if You Have Questions Concerning Your Debt and Credit Score

The choice to file for bankruptcy is fraught with difficult questions. Filers worry whether they will lose their homes or if their neighbors will know their financial problems. One of the usual concerns is how bankruptcy will affect their credit score. To understand how filing for bankruptcy will impact your credit score or if you have any other questions, contact our Huntington bankruptcy lawyers at The Bankruptcy Group. Call 1-800-920-5351 to learn more about the process.

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