Will Filing a Chapter 7 Bankruptcy Lower My Credit Score?
Many people do not want to file a Chapter 7 bankruptcy because they are afraid that it will lower their credit score. Debt settlement and debt consolidation companies lure people in by providing false information. Debt settlement companies tell potential clients that their credit will be ruined if they file a Chapter 7 bankruptcy. This is false. Many people who have low credit scores often see their scores go up after filing a Chapter 7 bankruptcy. These same people will also be given lines of credit within the next few months after obtaining a Chapter 7 bankruptcy discharge.
How Bankruptcy Can Help You Rebuild Your Credit
Studies have shown that filing a Chapter 7 bankruptcy can help repair your credit. One year after filing for bankruptcy, people who file bankruptcy are able to open up more credit accounts than those who choose not to file for bankruptcy. The majority of people who file for bankruptcy are given new lines of credit to help rebuild their credit score. Many people who do not file for bankruptcy and opt into a debt settlement program are usually stuck in a repayment plan for years. During this time their credit becomes worse and creditors are unlikely to extend new credit. Statistics show that within one quarter of filing for bankruptcy, the credit scores of people who go bankrupt improve by an average of 80 points over people in the same situation who do not file. People who file bankruptcy are also at an advantage compared to those who choose not to because they can begin saving their money.
How Does Bankruptcy Help Improve My Credit Score?
Many people do not understand how filing for bankruptcy can increase their credit score. Filing a Chapter 7 bankruptcy allows your debt to be wiped out. With no debt creditors are more likely to extend credit because they are more likely to be paid back. Lets look at an example:
John owes $50,000 in credit card debt. John files a Chapter 7 bankruptcy and gets his debt eliminated. He applies for a credit card and the credit card company extends him credit because he has no debt.
On the other hand, Frank has $50,000 of debt. Frank has medical bills, a repossession and 6 credit cards he owes. He decides he does not want to file a Chapter 7 bankruptcy. Instead, Frank w
ants to sign up with a debt settlement or debt consolidation company. After Frank signs up with a company he still has $50,000 dollars of debt. Frank will be in a repayment plan for the next few years. Creditors do not want to extend Frank credit because he has a high amount of debt and they think they will not get paid back.
Another reason that creditors will extend credit to you if you file for bankruptcy is because creditors know that you can only file a Chapter 7 bankruptcy every eight years. This means that if you do not pay them back you have no recourse to completely eliminate your debt. Creditors don’t like to give loans to people who have high loans and low credit because they are afraid they will file for bankruptcy. People who opt not to file for bankruptcy still have high loans, low credit and can file bankruptcy to wipe out their debt.
New York and New Jersey Bankruptcy Lawyer Karra L. Kingston Esq.
Karra L. Kingston Esq. has helped numerous people facing financial struggles eliminate their debt. She has helped people who have faced garnishments, repossessions, foreclosures and more. If you are being harassed by a creditor call Karra L. Kingston Esq. to speak with an experienced bankruptcy lawyer. A bankruptcy lawyer can help you decide if bankruptcy is the right decision for you. Karra L. Kingston Esq. has offices all over New York and New Jersey and can even travel to you at no extra cost if you can’t travel to one of their offices.