How Does Bankruptcy Impact Credit?

by Amy Jackson

One of the most common questions I hear as a bankruptcy paralegal is how will this impact my credit score.  Truth is if you are financially burdened there is a good chance your credit score is already being affected.  Bankruptcy can often help.  Yes, believe it or not bankruptcy can improve your credit score.  When bureaus calculate your credit score and lenders review your credit history one major factor is a little thing called debt to income ratio.  Having some debt is good for your credit score as it shows a credit history but having more debt than income will cause your score to sink faster than the Titanic.  Filing a bankruptcy will remove the liability for the debts you have making your debt to income ratio more favorable and in effect will improve your overall credit score.

What if your credit score isn’t below average…yet.  If you have been able juggle your debt and keep those minimum payments made chances are your overall credit score hasn’t tanked just yet.  Payment history is also an important factor when it comes to credit scores.  The big question here is just how long can you keep this up?  Once a payments are missed the creditors will report the account at 30, 60, 90+ days delinquent.  These late or missed payments will lead to higher interest rates, late fees, overage fees, and then the downward spiral.  If you file a bankruptcy while holding on to a good credit score you will likely see a dip in your score after filing.  That dip can easily be overcome after your bankruptcy by taking steps to rebuild your credit.

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