Filing for bankruptcy is a complex legal process that will affect everyone a little differently. Because of this, there are a number of myths and misinformation out there that you may have heard and believed. Before you start the bankruptcy process, you’re going to want to talk to a legal expert to get an idea of how your situation will play out. It will also help to know some of these bankruptcy “facts” that many believe, but are, in reality, completely wrong.
“Fact” 1: Bankruptcy Won’t Affect Your Credit that Much
Some people believe that their credit will quickly recover from bankruptcy if they have good credit or have very few negative items listed on their credit report. Some people even mistakenly believe their credit will go up after bankruptcy because their debts will be wiped out.
Unfortunately, this isn’t the case. Bankruptcy is a major red flag for lenders, and it usually doesn’t matter what your credit score is or how few negative items you have on your report. Bankruptcy, especially recent bankruptcy, is going to damage your credit.
“Fact” 2: Bankruptcy Removes All Debts from Your Credit Report
While filing for bankruptcy might remove some of the debt you own, it doesn’t remove anything from your credit report. All of the accounts you’ve had, even if bankruptcy eliminated the debt owed, remain on your report. In fact, if you were late or missed payments on these accounts, that will still negatively impact your credit score. Bankruptcy may remove what you owe, but it doesn’t remove the consequences of missed payments.
“Fact” 3: Your Credit is Forever Ruined after Bankruptcy
Fortunately, this myth is not true. Yes, filing for bankruptcy is going to damage your credit in the short term. However, depending on what type of bankruptcy you filed, it will only be listed for seven to ten years. During that time, you can use secured credit cards and other options to rebuild your credit. After the bankruptcy drops off of your credit report, it will no longer have any effect on your score. As long as you make sound financial decisions from then on, your credit will be fine.
Have further questions about bankruptcy? The experts at Michael F. Kanzer & Associations are here to help. Contact us today for more information.