Bankruptcy is considered one of the worst things that can happen to your credit. Typically, filing for bankruptcy can hurt your score more than 200 points. With the economic recession impacting millions of Americans, numerous myths are floating around about bankruptcy. Read on to discover 5 myths about bankruptcy, along with the real facts.
Myth 1: Having good credit before your bankruptcy leads to a higher post-bankruptcy credit score.
The logic behind this myth seems solid, however the information is false. Your credit management before bankruptcy does not effect your future credit risk. You’ll have the same damage to your score regardless of how your finances were conducted prior to the filing. The presence of the bankruptcy information on your credit report and the length of time since the filing are the biggest factors.
Myth 2: Your bankruptcy will show up on your credit report for 10 years.
Actually, there are different types of bankruptcy. Only chapter 7 bankruptcy remains on file for 10 years. Other types last 7 years, which is still a long time, but not quite a decade.
Myth 3: Your credit score will never get past a certain point as long as the bankruptcy is on your report.
This isn’t entirely true. Directly following the filing you should expect to have a low score, but if you work hard to raise your score in the aftermath of your bankruptcy and avoid making the same financial mistakes, you could theoretically get your score up to 700 or more after just 4 to 5 years.
Myth 4: Bankruptcy impacts everyone equally, regardless of how much debt they are discharging and how many accounts they are closing.
This is not true. The amount of debt discharge and the proportion of negative to positive accounts on your credit report have a huge impact on your post-bankruptcy credit report. If you only close a few accounts, you’ll have a better score than if you wrote off numerous accounts and a lot of debt.
Myth 5: Your credit history associated with the bankruptcy will be removed from your credit report once you file.
Unfortunately, that’s not really how bankruptcy works. All of the accounts that were included in the filing remain on your score for the entire 7-10 year period following the filing, though the negative impact of the accounts diminishes over time.
Declaring bankruptcy is a big step. Before filing, consult an attorney and learn the facts about how your credit scores will be changed. You may be able to minimize the damage done to your name and re-establish your credit faster if you plan ahead before filing.