One of the most common questions from new clients is: “Will this bankruptcy filing hurt my credit score?"
The first thought I have in mind is usually: “Why is borrowing more money the first thing on your mind at this point in your life?"
The point being that the way to get out of debt slavery is not to incur even more debt. Yes, some debts are unavoidable for the typical middle-class person, such as an auto loan or home mortgage. But post-bankruptcy, the last thing the debtor should be thinking about is incurring more credit card or other unsecured debts. Now that the debt has been placed under a bankruptcy, the Debtor should be contemplating strategies for saving money and then, once those fundamentals are laid down, investing.
The way to a savings versus a borrowing lifestyle is not more borrowing. It is learning, in many cases, to live with less. Less "stuff," less frivolous spending, and defining needs versus wants. Pay cash for day-to-day expenses and keep a budget, even it is simply a Google Doc you run on your phone each day. Look at your daily spending. That's what a business does. It keeps books and looks at its balance sheet, profit and loss and historical earnings and expenses. You should be constantly working to cut unnecessary spending and actively putting money into savings.
So, back to the credit report issue. A bankruptcy filing will simply cause a "Public Records" entry to be put on your credit report and will stay there for 10 years. What is important to know is that this entry has little or no effect on your overall score. Your Debt-to-Income ratio and the monthly record of late payments, record of court judgments, and the activity on your open credit accounts month to month is what affects the score in a material way. Yes, if you want to buy a home, you'll probably have to wait 1-2 years post-bankruptcy discharge. But you'll need that time to save a down payment anyway. You should always try to save a 10-20% down payment on a new home purchase that is financed to avoid Private Mortgage Insurance, or PMI, which will add unnecessary costs to your monthly mortgage payment.
In conclusion, the bankruptcy in and of itself does not have any material effect on your credit score.
Considering bankruptcy? Connect with Ryan Legal Services at (251) 241-5234 or submit an online form here.