Why Personal Bankruptcy Might Not Affect Your Credit Score as Much as You Think

Many debtors in Oak Park and throughout Chicagoland have concerns about filing for personal bankruptcy because they are concerned that it will impact their credit scores immensely. There are a couple of reasons that this is a bad reason to avoid filing for bankruptcy, however. First, regardless of the impact that consumer bankruptcy might have on your credit score, bankruptcy is often the only way for people to get out from underneath immense debt and get a fresh start. Second, and perhaps more importantly for anyone who is avoiding bankruptcy because of concerns about the hit to a credit score, bankruptcy simply may not affect your credit score as much as you think.
Why Bankruptcy Likely Will Not Result in a Significant Drop in Your Credit Score
According to a recent report from Fox 25 News, debtors’ assumptions about how bankruptcy filings will impact their credit often are incorrect. While it is certainly true that filing for bankruptcy can impact your credit score, debtors often fail to realize that a financial situation that is likely to lead to bankruptcy already has impacted the credit score in a significant way. As the report explains, “a lot of people who file for bankruptcy already have trouble with their credit score.” For instance, “maybe they have struggled with debt for many years, and as a result they have a lower credit score.”
Many debtors who make the decision to file for bankruptcy already have a credit score that is between 400 and 600. For those debtors, the report emphasizes, “you probably aren’t going to see a huge difference, a huge impact on your credit score when you file for bankruptcy.” While some debtors who make the decision to file for bankruptcy may have higher credit scores that could be impacted in more significant ways, it is most likely that facing tens of thousands of dollars in debt already have damaged your credit score.
In such a situation, bankruptcy is less likely to have a meaningful impact on your credit score, and in addition, you can be eligible for a discharge of the debts that are making it difficult to move forward with your life.
Filing for Bankruptcy and Developing Healthy Financial Habits
If you make the decision to file for bankruptcy—especially if you are filing for Chapter 7 bankruptcy, or liquidation bankruptcy—then building your credit back will require developing healthier financial habits. Once you file for bankruptcy and receive a discharge, you may notice a slight or significant impact on your credit score, depending upon the financial situation you were in when you decided to file. In order to fully get back on track, it is important to learn new tools for managing your finances, staying on top of your monthly bills, and living within your means.
What do healthy financial habits look like? The report recommends that you live off of “80 percent of your income or less,” and that you save “20 percent every time you get paid.”
Contact a Bankruptcy Lawyer in Oak Park
Do you need help filing for bankruptcy? An experienced Oak Park bankruptcy attorney can speak with you today about your situation. Contact the Emerson Law Firm for more information.
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