Collection calls, litigation, and wage garnishments are all stopped when you declare bankruptcy. It eliminates debt. And, contrary to popular belief, bankruptcy can improve your credit score.
When is Bankruptcy the Best Option?
Bankruptcy, according to credit reporting agencies and experts, is indeed considered one of the absolute worst things you could do to the credit rating. Nothing else, including foreclosures, charge-offs, repossessions, and collections, could lower the credit scores as quickly and dramatically as a bankruptcy. However, bankruptcy when faced with mounting debt that cannot be eliminated is also considered the quickest way to improve your credit score.
If you meet all of the following criteria, the bankruptcy option might be good for you:
- You can't see how you'll be able to pay off its debts.
- If you don't have numerous valuable possessions and the property has little or no equity, it's doubtful that the performance will change.
- You don't have to have a certain amount of debt to qualify. When your unsecured debts exceed the value of the possessions, bankruptcy may be an option for you. Credit cards, shop cards, and personal loans are examples of unsecured indebtedness.
How much and how quickly can credit scores improve?
Researchers discovered that filers' Equifax credit scores plummeted in the 18 months preceding filing bankruptcy then consistently rose afterward from filing for bankruptcy, depending on data from either Equifax credit bureau.
The following are some of the findings:
On Equifax's 280 to 850 scales, the average credit score for anyone who filed Chapter 7, the most prevalent kind of bankruptcy, in 2010 was 538.2. (Scores in the mid-600s and down are regarded below average.) The filers' mean score was 620.3 even by the time their lawsuits were dismissed during bankruptcy, which was generally within 6 months.
Chapter 13 bankruptcy, on the other hand, necessitates a three- to a five-year repayment plan, which is what most people fail to finish. Those that did finish, and received a discharge, on the other hand, saw their scores improve from 535.2 to 610.8 and up, according to the researchers.
Much lower benefits were seen in a recent study by FICO, the firm that invented the most popular credit score. According to Ethan Dornhelm, senior director of FICO's scoring and analytics department, median credit scores for persons who filed for bankruptcy from October 2009 to October 2010 increased from the 550s before filing to the 560s and above thereafter. (The majority of FICO scores range from 300 to 850.)
After two years, 28 percent of bankruptcy filers had 620 or higher credit scores. After four years, 48 percent had scores of 620 or higher.
The FICO study, on the other hand, made no distinction between Chapter 7 as well as Chapter 13, or between persons who were discharged and those who were not. Those who haven't paid off their debts may be skewing the outcomes. In other words, persons who filed for bankruptcy and were successful may have made more money than the median data show.
Right after a bankruptcy, it might be hard to obtain credit. Individuals who have finished bankruptcy, on the other hand, and were discharged, are much more likely to be granted fresh credit lines after 12 months as compared to those who were 120 days or more delinquent at the very same time, however, did not file, according to Nosal's research.
Call Fong Law Group at (626) 289-8299 for a free consolidation, and talk to an attorney today. We are here to help you get through this difficult time in your life, and help you with a Fresh Start.