We understand the importance of a good credit score. Without good credit, you will pay thousands more in interest on a car loan, be denied credit when you need it most, and you may feel unfairly judged by companies due to a robotic calculation.
First, our main goal with bankruptcy is to address debts, because if you cannot afford to timely pay on your debts and pay them down, you will be stuck with them for a long time and ultimately fall into a debt trap. Most people file for bankruptcy because life gets in the way. People get sick and have to deal with insurance red tape – if they have insurance at all. They get divorced, get laid off, see income they were counting on disappear due to pandemics like COVID-19. If you cannot afford to pay your debts on time and reduce the debt over time, a bankruptcy is a far better option than borrowing further and “robbing Peter to pay Paul”. A one-time elimination of debt in a Chapter 7 or a reorganization in Chapter 13 will better suit your needs.
If you file for bankruptcy, your credit score will likely drop. But then, if you play your cards correctly, you should see it slowly improve. You can improve your credit post-bankruptcy by paying timely on reaffirmed debts like mortgages, car loans, and furniture loans, along with student loans. You can seek post-bankruptcy secured credit cards and ultimately obtain new debt and pay that off timely because you won’t be stuck with old debt and its interest.
If you file for Chapter 13, you will be in a grey zone during your bankruptcy because you need court or trustee approval to incur debt (except emergency medical care). But it’s still possibly to borrow to buy a new car, obtain emergency home repairs, and even in rare cases get a modest credit card. Once you are done with the repayment plan, however, you should be in excellent shape with debt and able to go out once more and pay bills as they come.
In either case, the bankruptcy will stay on your credit report for 10 years from filing. So there is no real advantage to either chapter of bankruptcy there. The reasons for filing go toward your income, your budget, the types of debts you have, and considerations on protecting assets.
We can talk about your credit – and your debts – in a free consultation with one of our trained bankruptcy attorneys at WM Law.