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Will bankruptcy ruin my credit score?

One of the most common questions asked of bankruptcy attorneys is, "how will it affect my credit score?" People dread the thought of a tanked credit score following them around for the next ten years. Typically filing for bankruptcy will lower your score, but it will not ruin your score for a decade. There is no magic number stating how many points your score could drop because it all depends on your acquired debts and current credit status.

The long term impact on your credit score will depend on these two factors...

Your current credit status

When filing for bankruptcy most people are dealing with several delinquent accounts. They are way behind on their credit card and loan payments. If they have lots of debt and very few assets then it can be assumed that their credit is bad. Many people filing for bankruptcy are in this position and will only see their credit take a small dip downwards.

At other times people filing for bankruptcy may be deep in debt but they have managed to maintain a good credit score. In these cases their credit will take a pretty big dive. They can go from a number considered to be decent to a number 100 or more below that. This makes most people cringe. Although the idea of kicking your credit while it is down is scary, it can be better to take care of finances now rather than when they have gotten worse.

Timing of the bankruptcy

It is true that a bankruptcy can stay on your credit report for up to ten years, but not filing for bankruptcy and allowing all your debts to continue to collect will have a bigger negative impact in the end. For someone deep in the hole it can be best to file for bankruptcy early and allow for credit to heal over time. After getting caught up on finances a credit score will raise on its own.

The length of time a bankruptcy stays on a credit report can also depend upon the type of bankruptcy. A Chapter 13 bankruptcy can stay on a credit report for up to seven years. Since debtors will pay off their debts over the length of a bankruptcy then the remaining debts will stay on the report for a few years.

A Chapter 7 bankruptcy can stay on a credit report for up to ten years. Since the debts are discharged within the first few months of filing, then they will drop off the credit report fairly quickly. The sooner bankruptcy is filed the quicker the debts will drop from a credit report. In the end there are ways to restore credit and an experienced attorney can help with that process.

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