What Does Bankruptcy Do to My Credit Score?

Bankruptcy is a process that allows you to discharge some of your debts or create a plan for paying back your creditors. It is a process intended to give you a fresh financial start when you cannot meet your financial obligations any other way.

If you are considering filing for bankruptcy in Delaware, you are likely wondering how such a decision may affect your credit score and your finances. Knowing the facts can help you make the right decision in your case.

The Truth About Bankruptcy and Credit

Many people who need to declare bankruptcy worry about how the filing will impact their credit score. Bankruptcy can stay on your credit reports for up to ten years. If you are applying for loans of over $150,000, your bankruptcy may be visible to creditors for even longer than that. However, this is only part of the story.

The reality is that no two consumers are the same. How much your credit is affected will depend on your credit score before your bankruptcy, in many cases. If you were already falling behind in payments and you had few assets in relation to the number of debts, your credit score was already quite low. Even though life after bankruptcy will temporarily mean a lower credit score, it will not change much, since your score was already low. If you had a relatively good credit score, bankruptcy can mean your score drops more.

You also might want to consider the ways filing for bankruptcy can increase your credit score with time. If you are struggling to pay your debts, you are likely having a challenging time holding onto assets and making ends meet. A bankruptcy makes your payments affordable or reduces some of the debts, allowing you to start making payments on time and setting aside some savings eventually, so you get a fresh start and, with time, fix your credit score. Since bankruptcy can also help you hold onto your most important assets, such as your retirement fund and your house, it can also mean you are in better financial shape in the long term, even if your credit score is lower at first.

Creditors also may not react to bankruptcy the way you expect. As you rebuild your credit, creditors will be willing to work with you again even when they see that filing on your report.

In addition, Delaware requires debtors to work with a credit counseling agency approved by the U.S. Trustee in Delaware in the six months before filing. Before you get a discharge, you will also need to take a debtor education course. The very process of filing for bankruptcy can help you learn about credit and how to repair your financial life, which can also benefit you as you face life after bankruptcy.

It’s also important to remember that it is possible to recover from bankruptcy and rebuild. By paying your bills on time, taking on and repaying increasingly larger loans and by building assets while paying down debts, you will rebuild your credit rating. You may even find your rating after bankruptcy is the highest it has ever been.

Is Bankruptcy Right for You?

If you think you need to file bankruptcy or if you are considering taking this step, contact a Delaware lawyer for bankruptcy filings. An experienced attorney can guide you through the process, whether you choose Chapter 7 or Chapter 13. Delaware has its own exemptions and you cannot use the federal exemptions used in the rest of the country. The requirements are also slightly different, so working with an attorney is valuable for ensuring you follow all the procedures correctly.