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Managing Expectations and Benefits of Bankruptcy

If you already filed or are considering bankruptcy, you need to understand how it affects your credit. This involves clearing up some common misconceptions about how bankruptcy affects your credit.

Myth No. 1

If you don’t have negative information on your credit report prior to bankruptcy, you will have a higher post-bankruptcy credit score than if your report contained negative information prior to filing.

The Truth: Positive payment history and/or a lack of negative information does little to minimize the impact of a bankruptcy on your credit score. The presence of a bankruptcy, and the length of time the bankruptcy has been on your report, are the strongest determining factors

Myth No. 2

All bankruptcy information stays on your credit report for ten years, without exception.

The Truth: Only the public record of a Chapter 7 bankruptcy lasts for ten years. All other bankruptcy references remain on your credit report for seven years, including:

  • Trade lines that state “account included in bankruptcy”
  • Third-party collection debts, judgments and tax liens discharged through bankruptcy
  • Chapter 13 public record items

Once the above items start disappearing, you may see your credit score jump.

Myth No. 3

You will have poor credit as long as the bankruptcy information stays on your credit report.

The Truth: If your score is really low when your case is filed, it may not change much. However, some will have a dramatically lower credit score following bankruptcy. You can begin to build your credit back up with smart credit management. As early as two years after, but usually after four or five years, you may even be able to crack the good credit score range (700-749). Following bankruptcy, you can immediately begin to build your credit back up by:

  • Following the guidelines and counseling from knowledgeable credit repair professionals. We can connect you to one upon request. 

Myth No. 4

Bankruptcy affects the credit of all consumers equally, regardless of the amount of debt or the number of debts included.

The Truth: Your credit score will factor in details such as the amount of debt discharged and the proportion of negative to positive accounts on your credit report. If you have a relatively low amount of debt and only a few accounts included in your bankruptcy, your credit score will be higher than someone with a more severe bankruptcy.

Tackling difficult financial issues can be tough, but if you take advantage of the bankruptcy fresh start you will learn to control and dominate your finances. Consult an experienced bankruptcy attorney you can trust at Dolen, Tucker, Tierney, & Abraham, our bankruptcy and estate planning attorneys are well equipped with both the knowledge and the experience you want on your side.