How Bankruptcy Can Actually Improve Your Credit
Did you know that bankruptcy might be able to improve your credit score quicker than not filing? Your credit report contains a detailed summary of your recent financial information. Among other things, it can list all recent payments, missed payments, civil lawsuits, tax liens, and bankruptcies that you have filed. This information is then turned into a numerical credit score based upon secret calculation formulas.
Under the Fair Credit Reporting Act, a bankruptcy may appear on your credit report for up to 10 years from the date that it is filed. Although a bankruptcy filing is generally considered a negative reference on your credit profile, this does not necessarily mean that you will have bad credit for 10 years. In fact, many people often find that a year or two after filing their credit is significantly better than what it was before filing.
The effect that bankruptcy will have on your credit score depends on what your credit currently is, and what it would be in the future if you don’t file bankruptcy. If you currently have perfect credit and don’t anticipate missing any payments in the future, then bankruptcy would have a negative impact on your score. Of course, if that was the case, then you also wouldn’t be considering filing for bankruptcy.
If someone is having financial difficulty, however, their credit reports might contain missed payments, accounts in collection, or other information about collection lawsuits that have been filed. Even if someone is current on all payments, it is almost always the result of temporarily foregoing other household expenses on an unsustainable basis. In either scenario, the question should be whether, in a few years, your credit will be better if you file bankruptcy now or do nothing.
The important thing to remember is that if you do nothing, negative notations for missed payments, collection accounts, and lawsuits will continue (or start) to be reported. These may be reported for up to seven years. Debt settlements will cause a negative reference on your report, and may also result in tax consequences. And if you are sued, you may still need to file bankruptcy in order to prevent or stop a wage garnishment.
On the other hand, a bankruptcy discharge will prevent any more negative references for your debts from being reported. The bankruptcy filing itself will be reported, and each of your debts will be reported as discharged in bankruptcy, and will show a current balance of zero.
From this point, your credit profile will start fresh and there are many strategies you can take to rebuild credit. Bankruptcy essentially draws a line in the sand after which you can start to rebuild credit as quickly as possible without any concern for past debts, instead of having to struggle with the same debts being re-reported every month as further behind.
If you struggling with debt and anticipate needing credit in the future, please contact us today for a free consultation.
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Culik Law is a Massachusetts Attorney / Law Firm. The posts on Culik Law’s blog are not intended as legal advice. If you have questions about your particular situation, CONTACT CULIK LAW for a Free Consultation. (CulikLawReviews)