No one wants to declare bankruptcy. However, sometimes it is the best option for your financial situation. A worry that most people have is whether declaring bankruptcy will hurt their credit irrevocably. Get informed on the impact that declaring bankruptcy has on your credit below.
What Effect Does Declaring Bankruptcy Have on Credit?
The short answer is that declaring bankruptcy almost always results in damage to your credit. This comes in two forms: a lower numerical credit score and a note on your credit report that you declared bankruptcy. These effects can hurt your ability to take out loans, secure housing, and more.
The type of bankruptcy you declare will determine how long it stays on your credit report. Chapter 7 and Chapter 11 bankruptcies, for example, remain on a credit report for 10 years. Chapter 13 bankruptcies, on the other hand, remain on a credit report for seven years.
There are certain situations where declaring bankruptcy may not have a major negative impact on your credit score. This may be the case if you have an inconsistent payment history prior to declaring bankruptcy because payment history constitutes 35% of your total credit score. Another 30% of your credit score is the amount of debt you owe. Since bankruptcies discharge debt, this portion of your credit score may not have as much of an impact.
While declaring bankruptcy may not lower your credit score significantly, this is rare.
Considering Bankruptcy? We’re Here to Help
A bankruptcy doesn’t have to ruin your entire life. Sometimes, declaring bankruptcy is your only viable option. At Pearson Butler, our Utah attorneys are here to help you analyze your options and choose the best course of action.
Call Pearson Butler at (800) 265-2314 to schedule a free consultation.