Many people who are having trouble paying their debts and surviving at the same time are often curious about the potential consequences of filing for bankruptcy. Luckily, debtor’s prisons were done away with back in 1833, but if you file for either Chapter 7 or Chapter 13 bankruptcy, your credit score will be affected. Here’s some more information on what filing for bankruptcy does to your credit and how long the effects last.
While it’s generally true that creditors don’t like to see a bankruptcy on your credit report, how much it affects your credit score depends largely on what your credit score was beforehand. If, for example, you have a credit score of 680 (the average for US consumers is 689), filing for bankruptcy will lower your score by somewhere around 150 points. If you have a score of 780, then bankruptcy will cost you up to 240 points. Either way, there will be a loss, but the net loss will be greater on a better credit score.
How long does it last?
Regardless of which type of bankruptcy you file, your credit score can be affected for up to ten years. In some cases, credit reporting agencies can report your bankruptcy for longer, such as when you apply for loans or life insurance policies greater than $150,000, but typically, the bankruptcy is deleted after ten years has passed.
Even though bankruptcy absolutely will affect your credit score in some way, it is often still the best option, such as when you’ve lost your job and have no income for reduced or consolidated payments on your debts. There are also steps you can take to start rebuilding your credit right away, such as making all of your payments on loans and credit cards on time and keeping your debt low in relation to your available credit.
While filing for bankruptcy is not an easy decision to make, it’s often the best solution when you’re buried in debt with little hope of pulling out of it. When filing in Arizona, there are a lot of necessary steps to take in preparation for filing. It’s also best to consult an experienced attorney who can help guide you through the process. If you’re considering filing for bankruptcy, speak to a bankruptcy lawyer today.