How will bankruptcy affect my credit?

 

A:

Some people don't consider bankruptcy because they're afraid it will ruin their credit.  If you're experiencing serious financial difficulties, filing bankruptcy may be the quickest way to improve your credit score.

If your credit cards are maxed out and you're facing garnishments or repossessions, your credit score is already suffering.  Filing bankruptcy isn't good for your credit, but it may be your best option.  Many creditors decide to lend to people who file have filed bankruptcy for two reasons: 

  • Filing bankruptcy will discharge most -- if not all -- of your debts, making your finances much more manageable.
  • If you've received a chapter 7 bankruptcy discharge, you won't be able to file again for eight years; however you can file for a chapter 13 repayment plan. To creditors, this actually makes you a better risk. It means your future debts will be collectible.

Most people with debt problems can expect a 50 to 75 point improvement on their credit score after their debts have been discharged in a bankruptcy.