An area of common concern with many of my clients before, during and after filing for Chapter 7 or Chapter 13 bankruptcy has to do with credit ratings. There are probably an untold number of people who could stand to benefit greatly from filing bankruptcy, yet never step foot in an attorney’s office simply because they fear their credit ratings will be irreparably harmed. This is a common misconception, and this week I wanted to write specifically about not only the effect bankruptcy can have on your credit, but also how it can help improve your credit score over time.
The truth is, for many of my clients, months of late payments while carrying unsecured debts have already resulted in significantly low credit scores. While your credit score will indeed take a hit when your bankruptcy is first filed, having many or all of these debts discharged can actually help improve your credit score as soon as one year after filing.
That first year can be the toughest for many clients, but those who use the filing to create a budget and stick to it will begin seeing the dividends sooner rather than later. While a bankruptcy remains on your credit report for 10 years, it is important to keep in mind that bankruptcy settles or closes the negative credit that is already hurting your credit score. Additionally, it will not take 10 years for your credit to improve; you can start to repair it right away.
Of course, your credit will not be repaired simply by filing bankruptcy. You will need to improve the way you manage your money after filing in order to restore your good credit. The good news is that a Chapter 13 or Chapter 7 bankruptcy can provide you with a second chance, but it will be up to you to determine what you do with that opportunity. On Wednesday, I will tell you about some of the steps my clients took to restore their credit—and their good name.