If you are thinking about filing for bankruptcy, then you have come to the right place. Many people are often worried about how bankruptcy will impact their credit score. One of the biggest reasons that people in New York and New Jersey opt not to file for bankruptcy is because they think that their credit score will be ruined forever. Many people are surprised to learn that when they file bankruptcy, their credit score increases. While many false advertisements try to tell people that it will ruin your credit forever, this is far from the truth. Bankruptcy laws were enacted to help individuals start over. Therefore, if people couldn’t get credit after filing bankruptcy, it would defeat the whole purpose of why Congress implemented it.
The Federal Reserve did a study recently and found that people who filed bankruptcy were able to open more credit accounts after one year of filing than people who chose not to. Moreover, 55% of people who filed for bankruptcy relief were seen to have more credit than someone who did not file.
Further one quarter of the people who filed had higher credit scores than people who chose not to file bankruptcy. Lastly, it was shown that someone who filed bankruptcy had an 80-point increase in their credit score vs someone who did not.
As you can see based off this study, that there is a lot of false information out there regarding how bankruptcy will impact a credit score. If your credit score is the main reason keeping you from filing for bankruptcy, then you may want to reconsider how bankruptcy can have a positive impact on a credit score.
How Can Filing Bankruptcy Help My Credit Score?
- Debt to income Ratio -When you file for bankruptcy, you have no debt. In turn, this means that your debt-to-income ratio is 0. This is important because this is one of the heaviest weighing factors that the credit bureaus look at when calculating a credit score.
- Starting with a clean slate – Unlike other people in the same financial situation as you, you have no debt. This means that lenders are more likely to extend a loan to you. Someone who has debt is more likely to default vs someone with a clean slate.
- Less risk of filing again – Individuals can only file for bankruptcy protection every 8 years. Therefore, if they lend to someone, there is more of a risk that they can file for bankruptcy. This can be helpful to individuals who want to take out credit after a bankruptcy because they are seen as less of a risk.
Will I Be Able to Improve My Credit Score Again After Bankruptcy?
Bankruptcy does not mean that you won’t have credit again. Many people start with secured cards and pay them off every month. Charging a little bit and paying it off each month can help increase your credit score. It is important to not fall victim to the false advertisement that is all over the internet. Many debt settlement companies will try and get people to sign up for debt settlement plans that don’t qualify. Prior to signing up for this, you should speak with an experienced lawyer who can review your credit with you and tell you what your best options are.
Karra L. Kingston Esq. is a lawyer based in Union City, New Jersey and Staten Island, New York. Karra helps individuals from all walks of life get out of debt and start over. Contact us today for a free consultation.