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Bankruptcy and Your Credit ScoreNot a client consultation goes by where I don’t hear the question “How will bankruptcy affect my credit?” Here’s the truth: if you are already behind on your bills or have a judgment or foreclosure on your credit report, your credit is already in the tank.

Every month that you miss another payment is a hit on your credit. That’s where bankruptcy comes in.  By filing bankruptcy, you can put a stop to the dwindling nature of your credit score and start rebuilding your financial future with sound financial decision that will reward you with excellent credit in as little as two years after receiving a bankruptcy discharge.

Check Your Credit Report for Negative Accounts

I encourage everyone to visit www.annualcreditreport.com to check for the negative accounts from each of the three credit reporting agencies. As long as you have delinquent accounts on your credit report, there is no rebuilding your credit score.

So How Can Bankruptcy Improve My Credit Score

Again, bankruptcy stops the downward spiral and eliminates your debts so that you can actually make your monthly obligations.

Making timely rental payments, utility payments, and accepting a credit card offer for a low limit and paying it off at the end of each month will all help to increase your credit score over time.

In fact, I have had clients qualify for mortgages within 2 years of receiving a discharge.

Remember that although your bankruptcy will be listed on your report for up to 10 years, that doesn’t mean your credit score will suffer for that long.

The primary concern among creditors when deciding to extend credit is your ability to repay what you owe. The fact that you filed bankruptcy probably means that you are no longer struggling to pay past due bills, so you are less of a risk than you were pre-bankruptcy.

Take-home points on credit and bankruptcy

If you have already been hit with late charges, judgments, repossessions, or foreclosures, you credit is already in the tank and probably won’t take a huge dip from filing bankruptcy. At this point, another dip in your score won’t affect anything since you already have credit too low to qualify for any reasonable interest rates on a vehicle or home.  Filing bankruptcy will stop the downward momentum and allow you to start rebuilding your credit.

If you are heading off the inevitable law suits and foreclosures that have not yet been reported on your credit, filing bankruptcy will surely hit your credit score pretty hard, but it would have happened once you defaulted on your creditors anyways, so getting in front of the problem only lets you start rebuilding your credit faster.