When you are in debt, it can often feel like drowning, as you receive bill after bill and constant calls from creditors and collectors alike looking for the money they are owed. If this represents your circumstances, you may be curious about your legal options. For many in unmanageable debt in which other relief options are unviable, filing for bankruptcy is one of the best options. However, it’s imperative to understand that this process is not without its consequences. One of the most impactful parts of bankruptcy is how it can affect your credit score. If you’re unsure what to expect or how to rebuild your credit after you’ve filed, the following blog and an Orange County consumer bankruptcy lawyer can help.
How Much Will My Credit Score Drop After Bankruptcy?
It’s important to understand that filing bankruptcy has inherent impacts. Unfortunately, many assume that this process can help them wipe out their debt so they can go right back to spending. However, in reality, filing for bankruptcy causes your credit score to drop drastically. This is one of the consequences of filing, as it forces borrowers to understand the severity of these matters. In addition, you will be considered a risky lendee, making it incredibly difficult to obtain loans.
Generally, your credit score will drop based on the score you started with. If your credit score was over 780 points, which is well above average and often considered very good, if not excellent, you can expect a significant decrease between 200 and 240 points. Filers with an average score of 680 would experience a less drastic drop, as it may drop between 130 and 150 points.
You should also note that bankruptcy can last a considerable amount of time on your credit report. Filers who choose Chapter 7 will see their filing remain for ten years, while those who pursue Chapter 13 can expect their filing to last for seven years.
What Can I Do to Rebuild My Score?
If you have made the decision to file for bankruptcy, understanding what you can do to help rebuild and improve your credit score is critical. Generally, one of the most important things you can do is mind your spending. After your debt has been dismissed, you may be excited to have a clean slate. However, this doesn’t mean you should go out and start making large purchases and running up credit cards again. Creating a strict budget and adhering to it is critical to ensure you do not fall back into the cycle of debt.
One of the best ways to build your credit score after bankruptcy is to open new credit cards and show that you can borrow and spend responsibly. However, because bankruptcy can cause your credit score to fall drastically, you’ll find that you may be unable to secure a line of credit from the major card issuers. As such, you may want to apply for a credit builder card. These are designed specifically to help improve the credit scores of customers, as they have a small limit and high annual percentage rates (APR) to reduce the risk to lenders while incentivizing customers to pay off their cards.
As you can see, bankruptcy can have a significant impact on your credit, and doing what you can to rebuild your credit after this process concludes is critical. That is why working with an attorney is imperative. At the Law Offices of Michael D. Pinsky, P.C., we can guide you through this process to ensure you can reap the full benefits of this process while assisting you in rebuilding your credit. When you’re ready to file, contact our firm to learn how we can help you.
