Myth: Bankruptcy Will Ruin My Credit

One of the reasons people fail to consider bankruptcy as a viable option in their search for debt relief is that they simply do not understands the facts versus myths about bankruptcy. Perhaps the largest deterrent of people seeking help through bankruptcy is the notion that bankruptcy will ruin their credit. This is false information that could be the difference in becoming debt free or continuing to be saddled by debt burdens.

 

Crash Course In Credit

 

Bankruptcy doesn’t ruin your credit: debt does.

 

In fact, the reason your credit score drops when you are in debt is due to high debt balances, maxed out balance to credit limit ratios, and missed payments. These factors are the real culprit behind your credit score crash.  Most credit bureaus look to see how much you have borrowed across all your accounts, how high those balances are compared to the available limit, and whether or not you have any inconsistent payments on your accounts. Any one of these is likely going to chip away at your credit score, but having more than one of these can cost you tens to hundreds of points on your credit score.

 

While it is true that a bankruptcy will remain on your credit report for up to seven years, that mark alone is not enough to prevent you from improving your credit score and getting credit again in the future.  However, what people often do not know is that bankruptcy clears your delinquent or over-extended credit profiles. Following a debt discharge in Chapter 7 or Chapter 13, your debt balances are either eliminated or significantly reduced. Your debt to balance ratio will be lowered, or zero; and your delinquent payment history will have a clean slate. By reducing your balances, lowering the balance to debt ratio, and erasing inconsistent payments by prevention; you have a chance to start with a fresh credit building opportunity.

 

You will have to do some work to regain control of your credit score, but you may have a better chance at better credit following a bankruptcy. Contact your Houston bankruptcy lawyer for more information and to discuss your debt relief plan, today.