If you’ve been thinking about credit repair and resolving your debts with a bankruptcy case, you might be aware of the potential damage it could do to your credit. While it’s true that a bankruptcy case will likely lower your credit score and temporarily prevent you from qualifying for mortgages and some other loans for a few years after your case is completed, those things are far out-weighed by the benefits of filing.
Despite the immediate impact on your credit score, the effects of a bankruptcy case will be a steady process of credit repair, budget simplification and long-term financial stability/rehabilitation. Behm Law Group Ltd. attorneys work with clients filing for Chapter 7, 13, or 12 bankruptcy from start to finish. With our professional guidance, you can find permanent debt relief through bankruptcy and begin your own process of credit repair and financial rehabilitation in Fairmont, MN, and the surrounding areas.
While a bankruptcy case will definitely have an impact on your credit score, the extent of that effect varies greatly. How much your score might drop almost entirely depends on the condition of your credit before filing.
Impacts on Credit
- Good–Excellent (690–850): If your score is in the good-excellent range, you’ll take the biggest hit when you file for bankruptcy. Most scores will drop into the fair–bad range, typically by around 200 points.
- Fair (630–689): Even with a fair credit score, you’ll probably still take a hit. Those with a fair score will drop into the bad range, but usually not by more than 150 points.
- Bad (300–629): Those with bad credit will see the smallest change in credit points after filing for bankruptcy. If your score is very poor, it might not drop at all with the filing of your case, and if it’s on the higher end of the range, you’ll likely see small changes, usually by under 100 points.
The other aspect of a bankruptcy case that will determine how much your credit score drops is the type of chapter you file. Chapter 7 liquidation bankruptcy will generally cause greater drops in credit because it may “look worse” to lenders. This is because your creditors in a Chapter 7 bankruptcy case almost always receive far less than what they’re owed. In most Chapter 7 cases, most creditors receive nothing.
Chapter 13 bankruptcy, on the other hand, can result in the full repayment, under adjusted terms, of secured debts and the partial repayment of unsecured debts. Through your repayment plan, most creditors are repaid at least some of what they’re owed, making it “look better” to potential lenders. Consequently, a Chapter 13 case may have a lower impact on your credit.
Even considering these details, bankruptcy is still a highly effective option for credit repair and financial rehabilitation for many filers. Bankruptcy permanently relieves debts and opens the door for filers to begin comprehensive work to repair their credit and stabilize their finances.