You may worry about what a bankruptcy filing will do to your credit. Still, filing for bankruptcy is often better for your credit score than the other alternatives. Plus, there are ways to rebuild your credit following bankruptcy.
Bankruptcy and your credit score
It is true that your credit will take a hit if you file for bankruptcy. If you file for Chapter 7 bankruptcy, it will remain on your credit report for 10 years. If you file for Chapter 13 bankruptcy, it will remain on your credit report for seven years.
Still, is this worse than some other alternatives?
If you let your home fall into foreclosure, the foreclosure will remain on your credit report for seven years and you will have no home. Filing for bankruptcy may allow you to keep your home while also discharging some or all of what you owe on the mortgage.
What if you let an unpaid credit card or medical bill go to collections? A debt sent to collections can remain on your credit report for seven years and you could even face a potential lawsuit. Filing for bankruptcy can often discharge unsecured debts without the threat of a lawsuit, giving you a clean slate moving forward.
What if you did not pay your auto loan and your car was repossessed? A repossession will remain on your credit report for seven years, and you will no longer have a car. Filing for bankruptcy can clear up delinquent car payments and you might still be able to keep your vehicle.
As this shows, filing for bankruptcy is often the better option for dealing with unpaid debts.
Rebuilding your credit
Not only can filing for bankruptcy be the better option to some alternatives, but there are ways to rebuild your credit following bankruptcy.
For example, you can apply for a secured credit card, even if you do not qualify for a traditional credit card. If you pay back what you owe regularly, it can help you rebuild your credit.
Second, pay all other bills on time. Paying bills on time can have a big impact on your credit score.
Finally, if you can obtain an unsecured credit card with a co-signer, keep the balance below 30% of your credit limit. How much available credit you have on a credit card can affect your credit score.
As this shows, filing for bankruptcy does not ruin your credit forever, and sometimes you can begin borrowing again even before the bankruptcy is erased from your credit report.