What Does Bankruptcy Do To Your Credit Score?
Bankruptcy affects your credit score differently, depending upon what your credit score is just prior to filing. You can expect that your credit score will drop after filing bankruptcy, but it will also recover quickly if you take the right steps after bankruptcy to increase your credit score.
If your credit score is above 650 before filing bankruptcy, you can expect a significant drop in your credit score, according to Experian. However, you should remember that your purpose for filing bankruptcy is less related to your credit score and more related to being able to balance your budget. You can recover your credit score after the debt is gone.
If your credit score is below 650 before filing bankruptcy, you can expect your credit score to drop but not in a significant way. In fact, your credit score will bounce back within a year from filing the bankruptcy and go up from there.
Does Chapter 7 Affect My Credit Score Differently Than Chapter 13?
When it comes to your credit score, it does not matter what chapter of bankruptcy you file. Some clients feel better about filing a Chapter 13 than a Chapter 7 because in a Chapter 13 you are paying back some of your debt. We encourage clients to file the chapter of bankruptcy that makes most financial sense for them. We help you to make that decision, of course.
Improving Your Credit Score After Bankruptcy
Keep in mind that while filing bankruptcy lowers your credit score, you will also get a bump up in your score when your debt to income ratio changes. While filing bankruptcy doesn’t change your income, it does change your debt. As a result, your “debt to income” ratio changes in your favor. This is one of the key factors used to calculate your credit score.
Once your bankruptcy case closes, the key to improving your credit score is to make payments to creditors who will report your payments to the credit reporting agencies. Most commonly, mortgage payments and vehicle loan payments are a way to do this. If you do not own a home or car, you can take out a secured credit card at a local credit union. This is a quasi-credit arrangement where you give the credit union a small amount of money. Then, each month, you spend or borrow against that money by making purchases on the card. When the monthly statement comes, you pay it off. In exchange, the credit union will report your payments as positive payments to the credit agencies and it will help build your credit.
Speak With A Charlotte Bankruptcy Lawyer Today
If you are considering filing bankruptcy, it’s important that you speak with a Charlotte bankruptcy attorney. The call is free and you will come away with a much better understanding of your options. You can reach us at 704.749.7747 or click to request a FREE CASE EVALUATION, and we will be in touch shortly.
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