Bankruptcy's Impact on Your Credit Report

If you are considering bankruptcy as an option for addressing your debt situation it is important to be well informed so that you understand the effects and know what to expect. Bankruptcy is a legal option available to consumers that are experiencing severe debt problems. Consumers should consider filing for bankruptcy as a last resort debt solution. Filing for bankruptcy is a major decision that could have negative consequences for you and your credit report for years to come.

How Bankruptcy Affects Your Credit Report

To truly understand how bankruptcy may affect your own financial situation you must seek the advice of a legal professional that is knowledgeable in bankruptcy law.

Filing bankruptcy is a matter of public record. Information on every bankruptcy court case is available for the public to view. In addition, a bankruptcy is reported to credit reporting agencies and remains on your credit report for up to 10 years after the filing of the case. A potential lender that sees a bankruptcy as a part of a consumer's credit report information will view it has an extremely negative item, worse than delinquencies or accounts in collections. It will have a negative effect on your credit score since a credit score is created from the information on your credit report. Bankruptcy could potentially lower a good credit score by 100 or more points.

Bankruptcy may not relieve you of all debt obligations. If you are considering bankruptcy you should consult an attorney to determine how secured debts, debts obtained with a co-signer, and other types of debts are handled. Generally debts such as taxes, student loans, child support, and alimony cannot be discharged during a bankruptcy. It important that you make payments for these types of obligations on time since late payments could continue to be reported to credit bureaus and further impact your credit report information in a negative way.

Life After Filing Bankruptcy

Bankruptcy may make it more difficult for you to obtain credit, buy a home, and get insurance in the future. Credit that you are able to obtain may be from sub prime lenders that carry very high interest rates. Plain and simple, this translates to costing you more money for future credit transactions.

Then there is the negative stigma and embarrassment attached with filing bankruptcy. Everyone's situation is different; many times there are unforeseen circumstances that can lead a consumer to bankruptcy. The important thing is to gain as much financial knowledge as you can to help possibly avoid future financial difficulty and maintain a positive credit report.

The positive news is that after bankruptcy you have a fresh start without the burden of some or all of your debt. Rebuilding your credit history is a lengthy process; however you can start after bankruptcy by getting a small amount of credit and responsibly paying your bills on time. Consider obtaining a secured credit card as a way to begin to build a positive credit history. This type of credit card typically has low credit limits and requires you to deposit an amount at least equal to your credit line into a bank account.

Credit reports are an important tool and will help you as you embark on the road to financial recovery. By regularly reviewing your credit report information you will be able to monitor your progress as you work toward improving your credit report and becoming more credit worthy. Once you have built a positive credit history you should periodically check your credit report to help maintain it. An NFCC approved consumer credit counseling service agency like ours is available to assist you with understanding and reviewing your credit report as you work to recover from bankruptcy. This will not happen overnight; it will take time, be patient and learn how to use your credit report to help you become stronger financially and avoid negative financial issues in the future.