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.
See Related Blog Posts:

Comments

Post a Comment

Popular posts from this blog

Payday Lending and Predatory Lenders in Illinois

If you are in substantial debt in the Chicago area and are living in a paycheck-to-paycheck cycle, you may have taken out a payday loan to make ends meet. While payday lending is illegal in a number of states due to the predatory nature of these loans, it remains legal in Illinois. As a result, many debtors in the state have used payday lenders, and far too many of those borrowers cannot repay what they owe. According to a recent article from Progress Illinois , consumers have filed complaints about payday lenders in the state, illuminating a need for federal rules that address harmful lending practices . Predatory Payday Lenders and Protections for Consumers Due to the perceived predatory nature of payday loans, twelve states in the country have banned these lenders from operating completely, according to a fact sheet from loans.org . The states that currently have laws prohibiting payday lenders from operating include Arkansas, Arizona, Connecticut, Georgia, Mary...
Read more

Phantom Debt Collection Scams on the Rise in Illinois

Have you been contacted by a person claiming to be a debt collector who is seeking to recover a debt you allegedly owe? If so, you are not alone. According to a recent report from CBS Chicago , such parties claiming to be debt collectors are on the rise, and they are scamming Chicago-area residents. These alleged debt collectors are part of schemes known as “phantom debt collection scams,” since they involve the attempt to collect on a debt that the consumer does not actually owe. How can you avoid becoming a victim in a debt-collection scam ? What should you do if you have been targeted by a fake debt collector? How Do Phantom Debt Collection Scams Work? Now, you might be thinking to yourself: I would never agree to make payment on a debt that I did not owe. But the scam is not always that simple. Parties at the center of debt-collection scams often target consumers who do actually owe debts (to someone or to some entity), and they prey on the fact that these c...
Read more

New Information on Debts That Bankruptcy Cannot Discharge

If you are thinking about filing for bankruptcy in the Oak Park area, it is important to know that certain kinds of debts cannot be discharged in a bankruptcy case. Under U.S. bankruptcy law, these are known as non-dischargeable debts, or exceptions to discharge. There are certain types of debts that have long been identified clearly as non-dischargeable debts, while there are misconceptions about other types of debts that may or may not be dischargeable. As an article in CNBC discusses, the U.S. Supreme Court recently issued a ruling in the case of Bartenwerfer v. Buckley , which clarifies that debts incurred due to another party’s fraud cannot be discharged in an individual’s bankruptcy case. Our Oak Park bankruptcy attorneys can explain the Court’s recent ruling and provide you with additional information on dischargeable and non-dischargeable debts. Supreme Court Says Debt Incurred Due to Another’s Fraud is Non-Dischargeable The recent Bartenwerfer case involved a debtor attempti...
Read more