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Law Offices of Stephen Orchard Law Offices of Stephen Orchard

Bankruptcy May Not Be As Bad For Your Credit As You Think


One of the biggest concerns that people who file for bankruptcy have is whether and how the bankruptcy will affect their credit. Although bankruptcy is not great for credit, it is still a meaningful step on the path to better credit than you may currently have.

How Long is Bankruptcy on Your Credit?

As a general rule, bankruptcy stays on your credit report for ten years, and the bankruptcy on your report will negatively affect your credit score. But that doesn’t mean your credit score will go down, or stay down for long. Here’s why a bankruptcy may be better for your credit than you may think.

The Credit Benefit to Bankruptcy

Let’s first assume that you don’t file for bankruptcy. What happens to your credit then?

In all likelihood, you are paying off a lot of credit card debt, and based on your minimum payment schedule, you could be paying off those debts for 10-20 years. This is all assuming you are paying on time; if you are paying late, you not only have a lot of debt compared to your income, but you have late payments as well.

If you file for bankruptcy, your credit takes an initial hit—but immediately, your credit can start improving. There is no more high debt to income. There are no more late payments hurting your score. You are starting on “the road back,” much quicker than if you were in the debt cycle you’d have been in without the bankruptcy.

Shortly after bankruptcy, you may even receive offers of credit. Not great offers—many will have high interest rates. But if you just put a little on that card every month—even just $20-$50—and pay it off on time every month, you are building credit. It’s an opportunity you wouldn’t have had, had you opted to just keep paying off those debts without bankruptcy.

Offers of Credit

You will find that as time goes on, you will actually be offered more and more credit. Of course, you should only use your credit responsibly. You don’t want to end up back where you started from. But those offers only are coming because creditors know you just filed bankruptcy, and can’t file again for many years.

More Available Income can Help

After the bankruptcy, you aren’t devoting a percentage of your income to paying off creditors forever.

That means that you have more money to pay whatever creditors aren’t discharged. Or, you have more money to pay off secured creditors, such as a car, rent or a mortgage. You have the cash flow to either catch up, or keep current, on these essential expenses, that you wouldn’t have had absent the bankruptcy.

In some cases, you may be able to get rid of a lien that is too high for you to pay, or lower a car loan payment. This can also help you get back on track with creditors, thus helping your credit.

Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961 today to see how bankruptcy can help you get your finances back on track.


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