Nearly countless factors can negatively influence an individual’s or family’s finances. From divorce and job loss to medical emergency and home repair catastrophe, for some, financial peril always seems to be right around the corner. Unfortunately, many people avoid bankruptcy as an option for debt relief since they have so many misconceptions about the process and future effects.
There are several myths associated with the relationship between bankruptcy and credit score. It is wise to thoroughly understand the true risks and benefits bankruptcy has to offer. Here are three common myths about bankruptcy that many people believe to be true.
- Bankruptcy on your record will ruin your credit forever: While bankruptcy will drop your credit score initially, it is possible to improve your rating over time. Tips include getting a secured credit card, maintaining a budget and paying your remaining debt on time or early to avoid negative consequences. It will likely take time and effort, but the goal of any bankruptcy is to provide a fresh financial start for struggling individuals and this includes rebuilding a credit rating.
- Bankruptcy affects all credit ratings the same way: People believe different versions of this myth for different reasons. They might believe that everyone’s credit score drops to zero or, perhaps, everyone who files for bankruptcy will see an automatic drop of 250 points. Neither of these are true. The credit score factors in numerous details including the amount of debt discharged and the relationship between your negative and positive credit accounts. The impact of bankruptcy on your credit score is unique to your situation.
- You won’t be able to get another credit card or loan after a bankruptcy: It might be challenging at first, but it is possible to rebuild your credit rating through sustained efforts. Many people select a secured credit card at first and use that to start rebuilding a strong rating. Once credit card companies and loan agencies see a positive trend, they will continue offering financial deals.
When debt begins to mount, it can quickly become overwhelming. From credit card debt and medical debt to personal loans and mortgage payments, an individual can face an unstable financial future for countless reasons. For many people, Chapter 7 or Chapter 13 bankruptcy are strong options toward a stable financial future.