Your credit score is extremely important for your entire life. It may seem like just a little number, but the impact it has on everything from getting a job to buying a house and even filling that house with the things that you need is astronomical, and that’s why it’s so important to keep your credit score up, but sometimes that’s just not possible. When your credit starts to get bad, due to things like debts piling up, creditors knocking at your door and no money to pay it off, that’s when bankruptcy starts to look like the best option. But, how much do you know about bankruptcy and its effect on your credit score?
Can Bankruptcy Ruin Your Credit Score?
A lot of people think that bankruptcy is going to ruin their credit and so they do whatever they can to avoid it, including letting all those debts pile up. However, that’s not always the best course of action. If you can figure out a way to come out of debt without filing for bankruptcy that’s great, but if you can’t, bankruptcy may actually be able to improve your credit score like it has for over 800,000 people in the last year alone.
Three things that will help your credit score when you file for bankruptcy are that you’ll be able to:
- Remove the Debt
- Get Caught Up
- Get Payment Help
How each of these helps your credit score is as follows:
1. Remove The Debt
One of the best things about a bankruptcy is that it gets rid of the debt. One of the biggest influencers on your credit score is how much your debt to credit ratio is. If your debt is close to the maximum you’re allowed it brings your credit score down. If it is over, it brings the score down even more. Now if you add in collections and defaulted accounts your score is going to start dropping like a rock.
However, a bankruptcy removes these things by wiping out everything you owe (or the vast majority since there are a few debts that can’t be removed). That means your debt to credit ratio goes down. The collections on your account disappear and you’re ready to start all over again with a credit score that’s finally going to start going up.
2. Get Caught Up
The accounts that can’t be completely written off with bankruptcy are few, but if you have them you need to keep making payments even after the bankruptcy is over. One nice thing about it is all of your accounts are put on hold for a short time while you go through the court process and that means you get some time to get more money together to make payments.
Once the bankruptcy is over and many of your accounts have been removed, you’ll also have the ability to make timely payments on those accounts that aren’t removed because you don’t have as much money that you need to pay each month, making it much easier for you to get back to where you need to be.
3. Get Payment Help
One of the other great things is that those debts that aren’t removed by bankruptcy are usually going to be restructured. That means you might get lower payments, lower overall money owed or just a little bit less strict payment plan. You’re going to have more communication with your creditors and that’s going to make it a lot easier for you to get back on your feet and make sure that your credit score is going back up rather than staying where it is or was before the bankruptcy.
All-in-all, there are plenty of things that a bankruptcy can do for you. Of course, you want to make sure you’ve looked at other options before you file because that bankruptcy itself will affect your credit score and stay there for seven years, but once you’ve talked it over with a professional you’ll know whether this is the right option for you. And you’ll be able to make that bankruptcy work for you and your credit and, more importantly, for your future. With the right professional help, you could be on your way to better credit in no time at all.