How does bankruptcy affect future credit?

If you file bankruptcy, how does it affect your credit? Discover what happens to your credit, and what you can do to get it back in good standing.

Many consumers get into a situation where they have no choice but to file bankruptcy in New Mexico. These people often end up in financial distress due to unforeseen situations that make paying off debt difficult. Eventually, a person owes too much and the only solution is to file bankruptcy. While a bankruptcy wipes out the debt a consumer has, it also has a huge impact on the person's credit record.

Immediate Effects

As soon as a person's bankruptcy is discharged, the credit bureaus are notified. Experian explains that debts taken care of in the bankruptcy are removed from a person's credit file. The bankruptcy is also added. This will often cause the credit score to go down.

The Huffington Post notes the effects of the filing are reliant upon where a person's credit score was before the bankruptcy. Often people in this situation have delinquent accounts and collections, which lead to a low credit score. Typically, though, a score drop will be around 150-250 points. The higher the original score, the more it will likely drop.

Rebuilding Options

Consumer Affairs says a bankruptcy generally will stop a person from getting a mortgage loan for at least two years. However, some credit card companies will extend credit to a person, allowing him or her to begin building credit immediately following a bankruptcy. It is also important for people to keep in mind that any credit cards they had prior to the bankruptcy that were included in the case will be closed and will not be usable afterwards. To get credit, a person has to apply for new cards.

It is also wise for people who have just filed bankruptcy to be aware of lenders who target this group. They offer horrible terms and interest rates on credit lines, but may be the only lenders to offer credit to a recent filer. It is risky to take up such lenders on offers because it could lead financial troubles again. It is better to wait for more attractive options.

The American Bar Association advises that your bankruptcy will show on a credit report for 10 years. This could prevent a person from getting credit or cause issues with getting good interest rates on loans. However, because a person can only file once every eight years, some creditors may see this as a positive. It means the person cannot file again soon if they just filed. Because of this, it cannot be strictly said that a bankruptcy rules out the possibility to get credit nor does it make all creditors look at a person negatively.

Bankruptcy will usually be a negative when it comes to a person's credit report, but it can be better than drowning in debt. If you have debt problems, you may want to consider contacting an attorney, such as Matthew Gandert, and starting the bankruptcy process.