Bankruptcy, Credit and You

When you’re deep in debt, it can feel like there’s no way out. Bankruptcy can offer relief by discharging some or all your existing debts, but many people fear the effect that declaring bankruptcy will have on their credit ratings. After all, declaring bankruptcy can impact a person’s credit, making it harder to do things like getting credit cards, applying for loans or looking for a new apartment or home.

However, depending on how bad your debt was before, bankruptcy can instead improve your credit rating in certain circumstances. Exactly how this works is complicated, but it has to do with how your credit score is calculated by credit reporting agencies. Essentially, a variety of factors are weighed into your credit score, including your income, your outstanding debt, any liens or court judgments that have been levied against you, and a variety of other factors that point to your ability to pay back your debts. Depending on how bad your debt was previously, the negative impact of declaring bankruptcy can be far outweighed by the sudden disappearance of certain debts from your credit history.

That said, however, there are certain risks to take into consideration. First, depending on what kind of bankruptcy you file for, the record of your bankruptcy can appear on your credit reports for up to ten years. Second, even if your credit rating is better after you declare bankruptcy, it’s probably still not going to be very good, and you may still have difficulty with things like getting a mortgage for a home. And finally, on a more insidious note, even if your new credit isn’t that good, it might still be good enough for companies to start doing things like offering you new credit cards with high interest rates and significant late payment penalties. If the reason you previously went into bankruptcy was because of out-of-control spending habits, you need to be cautious that you don’t fall back into the behavior that led you to bankruptcy in the first place.  It is not impossible to obtain new credit after a bankruptcy discharge, but credit limits will ordinarily be lower, and any spending on new lines of credit should be carefully managed.

If you are experiencing financial distress, contact an experienced New Jersey bankruptcy attorney to discuss your options. The Law Offices of Hunziker, Jones & Sweeney are experienced in helping families and individuals deal with the devastating effects of financial distress and in mapping out potential strategies, including the possibility of filing for bankruptcy, to help them cope and to see the light at the end of the tunnel. The attorneys at the firm understand that financial distress is an extremely emotional and difficult time for anyone to go through. If you are experiencing severe financial distress and may be considering bankruptcy as an option or want to learn more about what a bankruptcy filing may do to help you, call The Law Offices of Hunziker, Jones & Sweeney at (973) 256-0456 or fill out our contact form for a consultation.

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