Is Bankruptcy Actually Helpful to Your Credit Score?

Bankruptcy is viewed by many as a last resort – something they do when there are no other options and they are faced with the direst of consequences caused by their financial struggles. Most people also believe their credit scores will suffer when they file for bankruptcy and many choose to postpone filing because they don’t want to damage their credit. Unfortunately, this can make their existing financial challenges even worse.

The better option is to take a long, honest look at your finances and determine how bad the situation really is. Are you experiencing a temporary bump in your financial road or is complete financial disaster on the horizon? Would tightening the financial belt a bit make a big difference or have you tried everything, only to realize you’ve reached the end of your financial rope?

If your financial struggles have been ongoing, chances are your credit has already taken a serious hit. Postponing bankruptcy will do little to help your credit score, and in the long-run, chances are good your credit will suffer more from waiting to file. If you are in a desperate financial situation, filing for bankruptcy could actually be a tool in helping you repair your credit score.

How could bankruptcy actually make things better credit-wise?

Credit and Cash are Not Viewed Equally

A strong credit score is important, but it’s not going to help you pay your bills on time or prevent the bank from foreclosing on your home.

The most important financial responsibility you have is to pay your debts in a timely manner and not doing so hurts your score more than most other things. If you are unable to make ends meet, a strong credit score will do little to prevent serious consequences like foreclosure and aggressive debt collection actions.

Bankruptcy Boosts Your Debt to Income Ratio

Your debt to income ratio plays a major role in your credit score and bankruptcy is one of the most powerful tools you have available to help improve this ratio. Filing for Chapter 7 bankruptcy eliminates your debt, automatically improving your debt to income ratio. Chapter 13 won’t offer the same immediate improvements, but it helps you organize your debt so you’ll be on your way to improvement.

If you’d like to learn more about other factors involved in calculating your credit score, check out this tutorial from Equifax.

A Fresh Start and a Long-term Focus

Patience is important in bankruptcy. There will be immediate benefits to filing, but there will also be long-term improvements. Your credit score is one of the long-term improvements.

Bankruptcy gives you a fresh start and despite the hit your credit score might take initially, over time, you’ll have the ability to improve every aspect of your financial situation, including your score. For many people, bankruptcy is truly their best option for solving the crippling money issues they currently face.

For more information or to discuss how bankruptcy could help you improve your credit score, contact R. Flay Cabiness, II, P.C. at (912) 554-3774 (Brunswick, GA); (912) 375-5620 (Hazlehurst, GA) or; (912)-554-3756 (Jesup, GA).

 

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