One of the primary reasons why consumers hesitate to file for bankruptcy is that they worry about what taking this step will do to their credit. This concern isn’t without merit. Filing for bankruptcy does temporarily affect an individual’s credit history and credit score in negative ways.
However, filing for bankruptcy is also often the best opportunity that consumers have to build a strong credit history and credit score in the long term. When consumers remain mired in debt and keep accruing late fees, missing payments, etc. their credit scores continue to drop By stopping negative credit reporting in its tracks via bankruptcy, filers are given the opportunity to build solid credit moving forward.
Weighing the pros and cons
If you are thinking about filing for bankruptcy and your credit is good, very good or excellent, you may want to consider whether a bankruptcy alternative will suit your needs and spare your credit. For example, if you’re struggling to pay your mortgage, modifying or refinancing your loan may solve your challenges while allowing you to maintain your high credit score.
If, however, your credit score is already mediocre-to-low, filing for bankruptcy may be an opportunity worth considering. If restructuring your debt and making manageable payments (Chapter 13) or having your dischargeable debts eliminated outright (Chapter 7) would allow you to achieve a fresh financial start, you’ll be in a stronger position to rebuild your credit for good than you would if you continued to struggle with overdue balances month after month.
It is important to carefully consider how filing for bankruptcy will and will not affect your credit before committing to this form of debt relief. By understanding that bankruptcy will negatively affect your credit but will also give you the opportunity to rebuild it after achieving a fresh financial start, you’ll be able to make informed decisions about your options.