If struggling with overwhelming debt, you have likely considered all the options available to you for regaining control of your finances, including filing for bankruptcy. Like many, you may shy away from this step for fear it will forever ruin your credit.
Understanding the potential impact filing for bankruptcy will possibly have on your credit may help you determine if this option best suits your situation.
Affecting credit in the short-term and long-term
According to MarketWatch.com, seeking bankruptcy protection will immediately lower your credit. However, it will not necessarily stay that way. As time passes, your filing generally has less bearing on your score. A Chapter 7 case generally remains a public record, and therefore part of your report, for 10 years. Other bankruptcy matters, including discharged debts and Chapter 13-related issues, fall from your report after seven years.
Rebuilding after bankruptcy
Filing for bankruptcy does not always mean a low credit score until it falls off your reports. Rather, taking certain steps will help you to rebuild your score. For example, this includes making new and old debt payments on time, adding new credit to aid in counteracting the negative information your reports contain and maintaining your credit card balances at less than 30% of their available balances.
Like others, you may mistakenly believe that a bankruptcy case will prevent you from getting future credit or loans. However, options exist, including secured credit cards and credit builder loans, which you may qualify for and will assist you in practicing good financial habits moving forward from your case.
Although not a step to take lightly, filing for bankruptcy offers a path toward a fresh financial start. Knowing the possible long-term impact, such as possible adverse credit effects, may help you in deciding if this step will effectively address your needs and legal objectives.