Constant calls from creditors and increasing debt can make you feel stressed and overwhelmed. You may have thought about filing for bankruptcy but did not because you are afraid it might hurt your credit score. Trying to find a solution that best fits your financial needs is sometimes difficult.
However, bankruptcy doesn’t have to be negative. Depending on your financial situation, filing for bankruptcy might be an excellent solution for debt reduction.
What happens to credit scores?
Most people are under the impression that if you have bad debt and file for bankruptcy, it will negatively impact your credit score. The good news is when you file for bankruptcy, it stops creditor harassment, potential lawsuits and wage garnishments, which all contribute to a bad credit score.
The average credit score for an individual who filed for chapter 7 bankruptcy went from 538 to 620 at time of discharge, according to a study.
Also, a study by FICO found that two years after filing for bankruptcy, 28 percent of the filers had a score of 620 and above. After four years, 48 percent saw a score of 620 or above and 1 percent scored 700 or above.
This shows that your credit score can improve over time.
Other benefits of Chapter 7 bankruptcy
Chapter 7 is one of the most common types of bankruptcy filings and can reduce or eliminate debt issues, including:
- Business, and credit card debt
- A few older tax debts
- Utility, rent and medical bills that are past due
- Civil judgments (does not include fraud)
- Personal loans
Chapter 7 will not eliminate overdue child support payments.
To find the best solution for your debt situation, consider hiring an experienced attorney. An attorney can evaluate your case and give you realistic expectations for eliminating your debt.