In my last post I mentioned that there are some valid reasons for not filing bankruptcy. Among these reasons are negative social stigma and belief that you can pull yourself out of your financial rut without bankruptcy help. There are also reasons relating to legal strategy, perhaps filing bankruptcy will not accomplish what you want it to, or will have some untended effect. You should definitely take advantage of a free consultation to talk to a Salt Lake City Chapter 7 bankruptcy lawyer about these concerns.
However, recently, I’ve been trying to eradicate some of the bad reasons for dragging your feet on filing bankruptcy. Most of these reasons relate to bad information that clients may have received from creditors who want to scare you away from filing, internet wackos, or “friends” who “know what they’re talking about”. These people either don’t have the education and training to give you sound advice, or they don’t have your best interests at heart. You should only rely on the advice of a competent Utah bankruptcy lawyer when addressing your bankruptcy questions.
In this post I’m going to talk about credit scores, a topic I always discuss with my clients. Here are the facts about bankruptcy and its impact on your credit: filing for bankruptcy will produce a negative entry on your credit report, and this negative entry will remain on your report for 10 years. These facts should give you pause, and you should be sure that you understand them before deciding to file.
The reason I’m discussing this as a bad reason to avoid filing is because the practical effect is not as bad as it sounds. Why? Because the truth is, by the time you come and see a Bankruptcy Attorney in Salt Lake City, your credit is already trashed! It is not uncommon for my clients to come in with a credit score in the very low 500s. At this level, filing for bankruptcy will actually improve your credit slightly!
More importantly, although a bankruptcy filing will negatively affect your credit score, the odds of you being able to repair your credit within 10 years without the help of bankruptcy protection are about as good as the odds of you winning the lottery – because that is what it will take for you to pay off your creditors when you are stuck in a sinkhole of debt! In other words, filing bankruptcy is the lesser of two evils: it may put a black mark on your credit, but it will allow you to get a fresh start and REBUILD your credit moving forward!
The negative effect of filing for bankruptcy on your credit score can be mitigated by the responsible management of a reasonable amount of credit over the coming years. Creditors want you to believe that filing bankruptcy will destroy your credit and that you will never be able to get a loan again – but this is simply not true. After you file bankruptcy, it is unlikely that you will be able to obtain a large mortgage with a low interest rate. However, contrary to what most people believe, you will have the ability to get credit cards, and especially car loans immediately after filing for bankruptcy! One recent client counted 24 credit offers received in the mail-specifically mentioning her bankruptcy filing-before she had even had her 341 meeting. Another client obtained a new car loan the day after she filed.
It is important that you not abuse credit, a fact which you are well aware of if you are in a position to consider filing bankruptcy! But, you should be aware that a responsible management of a reasonable amount of credit can help repair your credit score after filing bankruptcy.