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When you are in debt, you can be assured that your credit score is already affected. And when you try to get debt help, your choice will affect your credit ranking too. Each debt relief program affects your credit score in some way and that means you will have to consider that when you are making a choice.
Among the debt relief options, bankruptcy has the most effect on your score. This is why people are very scared of declaring themselves bankrupt. While the general idea about the credit report effects of this debt solution is true, there are also bankruptcy lies that you need to be aware of. These misconceptions might be scaring you away from the only solution that can give you debt freedom.
5 bankruptcy misconceptions that you need to correct
People have a lot of questions about bankruptcy and you may want to answer all of these to help you make a smart decision about your debt relief option.
There are 5 different bankruptcy lies about credit score effects that are hindering people from pursuing this debt relief program. You need to correct these misconceptions so you can make a fair assessment as to whether you will use this or not.
Bankruptcy Lie 1: A good credit report will leave you with a high credit score after bankruptcy. This is not true. The effects of bankruptcy on your score averages at 200 points. So whether you have a perfect credit score or not, it will be severely damaged still. Besides, the indication on your credit report that you filed for bankruptcy once in your life is enough to turn off potential creditors.
Bankruptcy Lie 2: Bankruptcy effects are the same despite the varying debt amounts and quantity of debt. If your debt is low and spread over different debts, it will not have as much effect on your credit score compared to a debt that is more extensive. The proportion between the good and bad debt will also play an important role in the credit score effects of bankruptcy.
Bankruptcy Lie 3: All information about a discharged debt will be removed from your credit report. All information on your credit history will remain for at least 7 years even after bankruptcy. This is because they are important data on your history and credit behavior. Your score will improve over time after bankruptcy since your credit balance is back to zero - for the discharged debts at least.
Bankruptcy Lie 4: Your credit score will stay low until after the bankruptcy is on your credit history. It is true that seeing your bankruptcy filing on your credit report will set a negative impression on creditors and lenders. However, this does not mean you will have a low credit score for the next 7 to 10 years. If you work hard to improve your credit behavior, you can have a high credit score in 4 to 5 years. This means making timely payments and making smart credit choices.
Bankruptcy Lie 5: All type of bankruptcy filing will remain in your credit history for the next 10 years. This is true for Chapter 7. However, other types like Chapter 13 will just stay on your report for the next 7 years.
Knowing these bankruptcy lies will hopefully, help diminish the fears that you have regarding the effects on your credit score. At least, you know that all is not really lost when it comes to your credit score even if you file for bankruptcy.
When being bankrupt makes sense
There are certain signs that will tell you if bankruptcy makes a lot of sense in your particular credit condition. Despite the bankruptcy lies and fears that you have in your head, you have to accept that it is a legitimate way out of debt. There are some financial situations that can only be solved by this debt relief option. If you want to get a professional confirmation, you can enroll in a credit counseling program. This is a requirement before declaring yourself bankrupt so this will not be a waste. You can view the accredited credit counseling agencies of the bankruptcy court through the Justice.gov website.
It is important that before you make a petition for bankruptcy, you have to know your other options. Debt settlement is usually the next best thing for people who badly need a debt reduction. It will not be as public as bankruptcy since people who declare themselves bankrupt are placed in public records. Your debt relief efforts will remain private with debt settlement. Best of all, it will not give you as much credit damage compared to bankruptcy.
But despite that, here are some of the signs that bankruptcy is the best option for you to achieve debt freedom.
You computed for debt settlement and you still cannot afford debt settlement.
You conducted your own means test and it shows a high chance of you landing a Chapter 7 bankruptcy.
Your financial situation is not likely to improve in the next few months or even years.
You do not have much assets that can be liquidated.
Here is a video that National Debt Relief created to help you decide if you should file for bankruptcy or not.