Declaring Bankruptcy And Your Credit Score: What To Know

Declaring bankruptcy is not pleasant for anyone out there, but sometimes it is just the very best option you have if you want to start anew and to not have creditors and recovery companies on your footsteps.

There are multiple ways in which you can declare for bankruptcy, Chapter 7 and Chapter 13 being the most common out there among individuals. The main difference between the two of them is that in the case of the first, you will get to have your debt erased (or at least up to a certain point), while in the case of the second, you will only have your debt re-organized in a 3-5 years repayment plan. Of course, there are other differences as well.

Aside for having their home taken, many people fear that filing for bankruptcy will ruin their credit score too. This is not always the case and the truth is that the extent to which your credit score may be affected varies a lot from one situation to another. One thing you have to keep in mind is related to the fact that there is a slight difference between your credit score and your credit report.

Basically, the credit report will be the report containing all your financial moves made in the past years. The credit score, on the other hand, will be a number that results from adding or up subtracting all the “points” associated with each good or bad move you have made from a financial point of view (not making your loan payments in time is a “bad score” example or paying your credit card in full at the end of the month is a “good score” example).

Bankruptcy will remain on your credit report for up to 10 years, depending on the particular circumstances. However, your credit score will not remain affected for that long. Studies show that the loss in credit score points most people have to face will not lead them to a score lower than 530 (if their score was above 600 before they filed for bankruptcy) and that this actually depends on each and every case.

A good dallas bankruptcy lawyer can help you with buffering the consequences and not having your credit score affected too much. Even more than that, you should know that your credit score can recover quite quickly if you take action towards building it again (making payments in time, taking a small loan just to make sure you build credit score, and so on).