Filing for bankruptcy allows you to eliminate some of your unwanted debt and clear you of any responsibility of repaying that money forever. It can be a saving grace for anyone that has accumulated a lot of debt and cannot make their payments anymore. However, wiping out that debt does not come without consequence, which leaves many people wondering, "How does filing bankruptcy affect my credit?"
Effect on Credit Score
The amount of points that are deducted from your credit score is not the same for every person filing bankruptcy. Everyone that files for bankruptcy will lose a different amount of points, but on average you can expect 100 to 150 points to disappear after you have filed for bankruptcy. A bankruptcy attorney may be able to give you a better estimate after evaluating your financial situation. There is a range of points because the deduction is proportional to what your credit score was before filing for bankruptcy. Someone with a high credit score will lost on the higher end of that range, while someone with a lower credit score can expect to lose on the lower end of that range. Of course, many people that file bankruptcy have stopped paying some of their bills, and every missed payment also deducts points from your credit score, so the entire process can cost you more than 150 points to your credit score.
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Effect on Credit Worthiness
The large point deduction that comes with filing for bankruptcy will obviously affect your ability to get credit, but what does that mean for your creditworthiness? Since filing for bankruptcy is breaking a contract that you signed with your lender to pay back a loan, other banks will view this as a sign that you are a very high risk borrower. This means that you will most likely not receive any kind of credit offers for a mortgage, credit card, or auto loan for the first few years after your bankruptcy filing. After you have slowly began rebuilding your credit, you may begin receiving credit offers, but at first they will be high interest and low-balance offers. Because of this, making any large purchases will be very difficult for a few years after filing for bankruptcy.
The good news is that the point deduction and general loss of creditworthiness that comes with bankruptcy is not a permanent effect. You can slowly rebuild your credit score through proper money management shortly after your bankruptcy filing has been completed. By paying all of your bills on time, and using secure credit cards, your credit score will begin to climb back up to a respectable level. By spending within your means and properly managing your money, you can use the time after filing for bankruptcy to develop good spending habits that will promote a better financial future.
Filing for bankruptcy is a big decision with a lot of implications, both positive and negative, that will last for up to ten years after filing. A bankruptcy attorney can help you assess your situation and determine whether filing for bankruptcy is your best option. Bankruptcy is often viewed as a last resort for people with financial troubles, so make sure that you have exhausted all other options before filing for bankruptcy.
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