What Happens To Your Credit Score When You File For Bankruptcy?
Do the debt collection calls and letters seem like they’re happening more and more frequently? Are you filled with anxiety about how you will make ends meet because you just don’t know how you’re going to make even the minimum payments toward your debts each month? You’ve heard that if you file for bankruptcy, your debts will be eliminated and the thought of being debt-free sounds so enticing.
But, if you’re considering filing for bankruptcy, there are some important things you should know about what it really does to debt, and especially what happens to your credit score when you file for bankruptcy.
No More Debt Sounds Good But Isn’t That Easy
Many have the misconception that if you file for bankruptcy, your creditors will eliminate your debt obligations to them. You’ll get rid of the harassing calls and the letters for collection will stop bombarding you.
To an extent, that’s what bankruptcy sounds like it will do. But, filing for bankruptcy won’t eliminate all your debt, and it’s not an automatic ‘debt-be-gone,’ just because you’ve decided you can’t afford your bills.
According to Forbes Magazine, your creditors will have a final opportunity to dispute the order of discharge of debts you owe them in a meeting of creditors. This means that even if you do file for bankruptcy, and it’s awarded, you still may owe them money. As well, some debts are not eligible for discharge (elimination) if you file for bankruptcy. These include student loans, real estate liens, alimony, child support, taxes, and certain luxury items. You may file for bankruptcy and still have significant debt for which you are responsible, and you’ve tremendously damaged your credit in the process. Be sure to consult an attorney if you are considering bankruptcy for professional advice.
Filing For Bankruptcy Leaves Lasting Impact on Your Credit
Declaring bankruptcy is considered a drastic path to eliminating your debt, and it’s one that will have a severe impact for up to ten years on your credit scores.
A FICO score is a three-digit number that is created by the Fair Isaac Corporation and is based on the information in your credit reports. This FICO score is used by 90% of the top lenders when it comes to making decisions about your credit-worthiness. This score is what determines whether you qualify for loans, at what interest rate, and how long the term of the loan will be and more.
Employers may even use your FICO score to look at your history of reliability and dependability, and bankruptcy could have an adverse impact. Because filing for bankruptcy could show that you are no longer paying your debts as originally agreed, your credit score can take a hit. That hit can last as long as the bankruptcy stays on your credit report, which could be a very long time.
For more information on options for your debt, contact UmbrellaDEBT Relief today.