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BANKRUPTCY EFFECTS ON CREDIT
What Occurs to Credit Scores After a Bankruptcy
Consumers are led to believe that filing for bankruptcy will forever ruin their credit, which is simply not true. There is a lot of misinformation about how a bankruptcy affects credit scores. The simple fact is that a bankruptcy action will appear as a notation on a consumer’s credit report for ten years; however, the real impacts of this have a temporary impact.
Immediately upon filing, bankruptcy may lower a credit score and may prevent consumers
from getting credit on large items, such as houses and vehicles; however, immediately
after filing, an individual can work on building their score to levels higher than
before the filing. In many cases, a consumer’s score can actually increase based
on one of the main factors for score being a person’s debt-
For lines of credit, individuals will probably start receiving new credit applications
immediately following discharge. This is because an individual’s debts have been
wiped out, leaving them in a very healthy range for debt-
At the end of a two year period, the bankruptcy notation will be of less consideration than the individual’s credit history for the two years after filing the bankruptcy. This will be an important time to make timely payments on all accounts, especially any secured debts.
Although bankruptcy does cause a negative effect on an individuals credit, it is
often the lesser of two evils when the other alternatives are default, foreclosure,
settlements, and repossession. Within a couple years, and individual may expect to
receive credit on normal market-
What Occurs to Credit Scores When An Individual DOES NOT File for Bankruptcy
Even though a bankruptcy will negatively effect a consumer, it must be considered in fact of the alternative of not filing for bankruptcy protections. In that scenario, many people turn to credit counseling agencies, which forcefully default on all accounts in an attempt to negotiate with credit card companies and lenders. This process may take several months to years to complete, all the while the consumers score drops lower with every passing months payments not being made. Any “settlements” that are reached are once again reported in a negative light, dropping a credit score even though the account is successfully ‘closed’ pursuant to negotiations.
Outside of lines of credit, other actions may happen outside a bankruptcy which will have negative impacts, such as the foreclosure of a property, the repossession of a vehicle, or a lawsuit resulting in a judgement, which, like bankruptcy, will remain on your credit report for ten years.
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