Bankruptcy and the impact on your credit

A frequent question that I get from clients is how a bankruptcy will impact their credit. There's no question that filing a bankruptcy is the worst thing that you can do to your credit. However, the impact to your credit is kind of like how much it will hurt to fall off of a ladder. If you're on the top rung, it will hurt a lot. If you're only on the first or second rung of the ladder, it's not going to hurt much at all. When people are considering filing bankruptcy, normally some kind of damage has already been done to their credit, whether that be late payments, collections, repossessions or foreclosure. As a result, the impact of a bankruptcy to a credit score may not be that significant when considering what the state of the credit was when the bankruptcy is filed. After a bankruptcy is filed, there are steps that you can take to improve your credit. The first is to notify the credit agencies that the debts included in your case have been discharged. Upon the issuance of the discharge order, we send all of our clients instructions on how to notify the credit reporting agencies along with a list of their creditors. This will expedite the reporting related to the discharge of the debt in bankruptcy. You also can open a small credit card to establish a good payment history after your case is discharged. Make sure that this is a credit card without an annual fee and use the card only to make charges that you can afford to pay for when the charge is made (i.e. gas, groceries, etc.). Pay the balance off in full on time every month and this will show other potential lenders that you can now make the payments for money lent in a timely manner. What ultimately helps credit heal, though, is the passage of time. A good credit score takes a long time to build up with months and years of on-time payments and fully satisfied debts.
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