Filing for bankruptcy is never an easy decision, although for the more than half a million Americans who file each year, it can often seem the only solution to their financial issues. Once you file for bankruptcy, it means your unsecured debts, such as credit cards, loans and medical debts, are discharged, and it also stops all those letters and phone calls from your creditors demanding money from you.
Many people regard bankruptcy as a fresh start, although if you are thinking of taking this route, you may be asking yourself how does bankruptcy impact a credit report? It can have a huge and immediate impact on your credit score; as a rule of thumb, you can expect to see your score decrease by anything from 160 to 220 points. If you previously had what lenders considered a good credit score, a bankruptcy will lower your score to poor, or perhaps fair.
A bankruptcy also shows up on your credit report for up to 10 years, depending on the type of bankruptcy you filed. This can make it a challenge to be approved for a car loan or a mortgage, or to be offered a low interest credit card, and once you have a bankruptcy on your credit report, you can expect any loans to come with a high interest rate. And although it can seem unfair, many potential employers don’t look favorably on applicants with a bankruptcy on their credit report, and even renting an apartment may be more difficult when a credit check is carried out.
It may benefit you to use a lawyer for credit repair, especially if you need your score to improve, perhaps to apply for a mortgage, or you feel there is an error on your credit report. It’s estimated that about 80 percent of credit reports have at least one error on them. A credit repair attorney will review your credit report with a view to seeing how to improve your score, perhaps by trying to have negative items removed, or by negotiating a lower settlement amount with your creditors.
Although a bankruptcy on your credit report can significantly affect your score and your ability to borrow money at competitive rates, it isn’t all doom and gloom. Bankruptcy can actually be a better option for some than an endless cycle of late and missed payments, charged off accounts, accounts in collection and increasing amounts of debt. If you file for bankruptcy, look on it as a fresh financial start and a way to slowly rebuild your credit score. Taking out a store credit card or a secured credit card, and making sure you make the payments on time can help to boost your score over the next year or two, along with paying bills on time.
Although bankruptcy can be a practical solution if you just have too much debt, you should of course make the decision carefully and consult with a bankruptcy lawyer before filing. You may have other options, such as debt consolidation.