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Why Bankruptcy Can Be Good For Your Credit

Credit report with score on a desk

Why Bankruptcy Can Be Good For Your Credit- Bankruptcy can be very good for improving your credit score. A credit score that has suffered from default in payments or other negative credit reporting can be restored though eventually after a bankruptcy filing. Let’s discuss how Chapter 7 Bankruptcy or Chapter 13 Bankruptcy can help restore your credit score.

Bankruptcy can be good for your credit score by wiping the slate clean. After you file Chapter 7 Bankruptcy, the slate is wiped clean on your credit. Everything that was on your credit history before is now replaced with a blank credit history that can be a solid foundation to build upon. If you continue to struggle with your past credit or attempt to settle your debts, your negative credit reporting will stay on your credit report. However, with bankruptcy, your past credit is erased. Your credit is erased and replaced with a single entry: the date, place, and chapter of your bankruptcy discharge. Bankruptcy can be good for your credit by creating a new clean foundation to build upon.

After all of your credit data is eliminated, you will have a new foundation to build upon after filing bankruptcy. Any future good credit payment history will be of a very high benefit to you in restoring your credit. Because this good credit will stand out alone with no blemishes, you will be able to build your credit very quickly.

Bankruptcy can be good for your credit because some people may have a higher credit score immediately after the bankruptcy. Most people believe that after bankruptcy they will have somewhat of an “F” credit rating. However, to most creditors, you more of have a C credit rating. This is because you do not have any more debt on your credit report and you cannot file bankruptcy for approximately eight more years. Many creditors, such as small loan or auto finance providers, are willing to take a chance on such a restored credit situation. This availability of limited loans allows many people to rebuild their credit history even faster after bankruptcy.

Bankruptcy can be good for your credit score because many people are able to get larger loans or even finance houses after two years. Even just two years after filing bankruptcy, it may be possible to be applicable for mortgage loans and loans of a larger nature. If you take the time to carefully rebuild your credit after bankruptcy, you may be able to pursue lifelong dreams such as buying a home. Such possibilities would have been very difficult to achieve for many people outside of starting over with bankruptcy relief.

Do not hesitate if bankruptcy is what your credit needs. If you have excessive defaults and other negative material on your credit report, do not hesitate if bankruptcy is what your credit needs for recovery. Bankruptcy could very likely be the first step in recovering your credit situation so that you can enjoy a life that is not plagued with the difficulties that come with bad credit. If you need help in recovering your credit or want any more information about debt relief, give our office a call.

~Indianapolis Bankruptcy Attorney John F. Bymaster

What happens to my credit score when I file bankruptcy?

credit-score

At our Indianapolis-area bankruptcy attorney office, we have a lot of clients that worry bankruptcy will destroy their credit score.   Our clients feel as if they will never be able to build their credit back up.  We encounter a lot of misconceptions and we are asked many times, “What happens to my credit score when I file bankruptcy?”  What a lot of our clients don’t realize is that bankruptcy can quickly improve someone’s credit score if they are delinquent on accounts or if their credit score is already in the tank.

Often times when someone files bankruptcy, their credit score can get better right away.  This is because the delinquent accounts, no-pays, and late payments are eliminated right away.  When a person files for bankruptcy, all the previous items on a credit report are wiped away and the person gets a fresh start.

Let me give you a brief illustration of what happens to a credit score in bankruptcy.  Let’s say there is “A” credit and “F” credit.  “A” credit would be the highest credit you could achieve and “F” would be the lowest.  Often times when someone comes in and files bankruptcy, they have “D” or “F” credit because they have delinquent accounts.  When they file for bankruptcy, all the creditor’s reports of the bad credit are eliminated and usually the person ends up with “C” credit immediately after filing bankruptcy.  A few people may see their credit score is negatively affected by bankruptcy, but this is probably because they had “A” or “B” credit.

Some of the reason for this instant “C” credit rating is because your potential creditors know that you have recently eliminated your debt.   They also know that you cannot file bankruptcy under Chapter 7 again for 8 years, which makes the creditor more likely to offer certain types of loans.

After you file for bankruptcy, you can build your credit back up.  A lot of times our clients receive offers for smaller-balance credit cards or finance offers for automobiles in the mail immediately after their bankruptcy case.  After 1-2 years our clients are usually eligible for larger financing options like mortgage loans.  Many times after two years, are clients are eligible for home mortgage programs such as FHA financing.

Although there is a misconception out there that bankruptcy can ruin your credit, a lot of times it is actually the first step to rebuilding your credit score.  If you have any more questions about filing bankruptcy or credit, don’t hesitate to give our office a call to set up a free consultation.

– Indiana Bankruptcy Attorney John Bymaster.