A bankruptcy is one of the most immediate and thorough solutions for major personal debt. A successful personal bankruptcy filing leads to a cessation of collection activity as soon as someone files. If the courts approve their discharge, they can eliminate the obligation to repay certain debts.
Even though bankruptcy offers clear benefits, many people put off filing or seek out alternative solutions for their debt. For such people, concerns about the financial implications of bankruptcy are often what lead to delays in filing. For example, many people worry about how bankruptcy might affect their credit scores.
Scores drop substantially after a filing
A credit score is a number meant to indicate someone’s overall creditworthiness. Obviously, a personal bankruptcy filing diminishes an individual’s overall credit score. Those with decent credit may find that their scores drop by as much as 200 points when they initially file.
The bankruptcy itself drags down their credit score, as does the sudden closure of their revolving lines of credit. However, the filer’s credit score may begin increasing again after they complete the bankruptcy process. As they begin using credit again, their score should improve. As the record of the bankruptcy ages, its negative impact on their score also diminishes.
Bankruptcy is only a temporary blemish
A history of appropriately using credit personal credit following a bankruptcy can quickly lead to an improved credit score. People who open new lines of credit and use them responsibly can begin improving their credit scores within weeks of a discharge.
Eventually, the bankruptcy records come off of their credit report, at which point their credit score may increase substantially. The financial relief provided by the bankruptcy combined with years of making on-time payments might actually leave someone in substantially improved circumstances. They may carry less of a balance on their revolving lines of credit and may have an easier time using credit responsibly after a successful bankruptcy filing.
It is only natural to worry about how bankruptcy can affect credit scores and creditworthiness. The sooner that people take assertive steps to address their financial challenges by eliminating certain debts, the sooner they can begin rebuilding and increasing their credit scores. Learning more about what happens during and after bankruptcy may help people feel more comfortable about the idea of filing.