This question is heavy on the minds of distressed debtors who are considering bankruptcy. Most people know that credit scores determine financial many financial matters, such as loan eligibility. Many lenders automatically accept potential borrowers with high scores and automatically reject people with lower scores. Your credit score may be used for other purposes as well. Examples include employment matters, property leases, and in most states, insurance rates.
Most people have low credit scores when they file bankruptcy. A single late payment might cause a 180-point drop. Just imagine what multiple late payments can do. Filing bankruptcy might cause an even larger decline. So, in most cases, when you file bankruptcy, your credit score goes from bad to worse.
Constant late payments drive your credit score lower every month. But bankruptcy gives you a fresh start. An Athens bankruptcy lawyer helps you maximize this fresh start. In many cases, the credit score restoration process begins before the judge closes the bankruptcy case. If people diligently work to improve their score, by the time the official note falls off their credit reports, most of them have forgotten that they filed in the first place.
Benefits of Bankruptcy
Before you make an important decision, like filing bankruptcy, it’s important to weight the costs against the benefits. We talked about some costs of bankruptcy above. Now, let’s talk about the benefits. These benefits usually involve the Automatic Stay, asset protection, and debt discharge.
The moment debtors file their voluntary petitions, Section 362 of the Bankruptcy Code usually kicks in. This provision stops adverse actions like:
- Wage garnishment,
- Creditor lawsuits,
- Foreclosure, and
- Creditor harassment.
If you file Chapter 13, the Automatic Stay usually lasts five years. During these sixty months, debtors gradually erase past-due mortgage payments and other secured debt delinquency free from creditor pressures.
One persistent bankruptcy myth is that it “ruins” your credit score. As outlined above, bankruptcy lowers your score, but does not ruin it. Another myth is that people who file bankruptcy lose their property. That’s not true either. Bankruptcy property exemptions include:
- Motor vehicle,
- Personal property,
- Government benefits, and
- Retirement account.
Usually, only luxury items, like yachts and vacation homes, are at risk for seizure and sale. An Athens bankruptcy lawyer can usually use some legal loopholes to protect this property as well.
Debt discharge (debt forgiveness) usually applies to unsecured obligations, like medical bills and credit card. Bankruptcy eliminates the legal requirement to pay these debts. Imagine what your family could do with the hundreds of dollars every month that these payments currently eat.
Credit Score Specific Effects
Filing bankruptcy could lower your score by as much as 180 additional points. But this effect fades over time. When the calendar turns, your score goes up, almost regardless of other facts.
The effects of discharged accounts are difficult to determine. Generally, a large, discharged debt has more of a negative impact than a smaller obligation. An attorney cannot do much about the numbers. But the “discharged in bankruptcy” note is usually negotiable. If the creditor does not add these three little words to the account, the effect is not nearly as bad.
Additionally, if the judge discharges the debt, you may repay it at your leisure. Alternatively, an Athens bankruptcy lawyer could negotiate a partial payment. A “settled” note does not have the same impact as a “discharged in bankruptcy” note.
Finally, bankruptcy gives you the power to raise your own credit score. Many people obtain credit cards after thy receive their discharges. Using the card every month and paying the balance off every month demonstrates responsible credit use. These on-time payments quickly raise your score.
On a final note, it’s also very important to remain current on secured debts. Paying your bills on time is a significant component of your credit score.
About the Author
With more than 41 years of experience in the areas of Bankruptcy, Disability, and Workers’ Compensation, Lee Paulk Morgan is one of the most respected Bankruptcy and Disability attorneys in Athens, Georgia. His tireless dedication to serving clients has gained him the reputation of a premier attorney in his areas of practice, as well as the trust and respect of other legal experts, who often refer clients to him. Click here to learn more.
Please be aware that this article was written and published in conjunction with the help of Gorilla Webtactics, Law Firm Marketing Agency, and does not contain legal advice. Please do not act or refrain from acting based on anything you read in this article.