Bankruptcy and Credit

Are you concerned about the affect filing bankruptcy will have on your credit? You are not alone. For many people their credit is an important factor in making the decision whether or not to file bankruptcy. Unfortunately, most of the information out there is nothing more than assumptions and rumors.

In order for you to make a more informed decision about the affect bankruptcy may have on your credit and whether you want to file for bankruptcy we have created the following information.

Filing Bankruptcy May Help Your Credit Score

Your credit score is comprised of many different factors; however, some of the more important factors include whether you have late payments, public records (i.e. court judgments and liens), and how much of the credit you have available is in use.

If you have had recent trouble making on-time payments to creditors then you likely have late payments recorded on your credit report. Each late payment affects your credit score negatively and takes at least 2 years before the late payment is no longer reflected on your credit report. If you have missed payments, then those may stay on your credit report for up to 7 years. Reducing the amount of late and missed payments that are recorded on your credit report prior to filing bankruptcy will reduce the damage to your credit score and allow your score to come back faster after your bankruptcy.

Important Tip: You will generally need to stop paying creditors prior to filing bankruptcy, but a bankruptcy filed closer to the time you stopped making payments minimizes damage done from late or missed payments. 

Public records are also an important factor in determining your credit score. The credit reporting companies generally report information from credit grantors and public records, including judgments and liens, on your credit report for 7 years. If you have missed payments and a creditor is now filing a lawsuit, then filing bankruptcy prior to the creditor getting a judgment not only protects your assets from the creditors, but also keeps a judgment or lien from being recorded on your credit report.

Important Tip: You want as few negative marks on your credit history as possible and filing bankruptcy stops judgments and liens from being recorded on your public record. 

Your credit score is also affected by the amount of credit you are using versus what you have available. If you have credit cards that allow you to spend $10,000 in credit and you have spent all $10,000 then you have maxed out your credit and this will keep your credit score low. If you did not have late or missed payments or negative public records, then this factor alone may not be reason to file bankruptcy. However, if the amount you owe is more than you can reasonably payback and you are facing the possibility of continued negative information being reported, then bankruptcy is an option for improving your financial situation and your credit score.

Stop Negative Marks on Credit With Bankruptcy

As soon as your bankruptcy is filed, it will stop your creditors from posting further negative information. Allowing continual negative marks to be recorded on your credit report can be worse for your credit than the filing of your bankruptcy. Bankruptcy is recorded as a public record on your credit report for no more than 10 years and by using credit wisely after filing bankruptcy you can quickly re-establish a good credit score shortly after filing.

If you think bankruptcy may be an option to handle your financial situation, then speaking to the bankruptcy attorneys at Cohen & Cohen as soon as possible will help to get you on track to filing bankruptcy and stop creditors from further damaging your credit score.

Call 303-933-4529 or contact us online right now to schedule your initial consultation at our convenient central Denver location.

See also: Chapter 7, Chapter 13, Discharge in Bankruptcy

About the Author: Robertson Cohen

Rob Cohen is a Managing Partner of Cohen & Cohen, P.C., serving clients in Colorado and Wyoming. He’s a Chapter 7 Bankruptcy Panel Trustee, certified mediator, and has administered over 8,000 Chapter 7 bankruptcy estates.

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