Will Bankruptcy Really Ruin Your Credit?

Will Bankruptcy Really Ruin Your Credit?

Contrary to popular belief, bankruptcy does not ruin credit. Financial trouble ruins credit, regardless of the circumstances that surround it. Bankruptcy actually protects assets, discharges debt and allows a debtor to regain financial control allowing them to rebuild their credit. This article explains how this is so.

What ruins perfectly great credit is financial trouble when a debtor has no means to pay existing debt obligations. This is true whether such debt is a result of poor financial management or some unfortunate and unforeseeable circumstances. Frankly, often it is a combination of significant use of credit and a change in circumstances (job loss, disability, health issues, divorce). Some people, particularly small business owners, see the recent economic downturn as an “unanticipated” event that caused the problem. I quote unanticipated because some of us saw it coming and arguably claim that ironically it was the “easy credit” which contributed to over borrowing as a direct cause of current economic slump.

Often people avoid learning about bankruptcy option for fear of the impact on their credit. Ironically, those who had the best credit scores tend to have the highest debts and may be in the most dire need for relief. Evaluating someone’s financial circumstances means looking at the current and future potential income in the context of the debt. When repayment is impossible or cannot be accomplished in a reasonable time, bankruptcy offers a start fresh. While bankruptcy stays on the credit record for 10 years, other negative factors such as charged off accounts, foreclosures, repossessions, and lateness impact credit scores and stay on the credit for 7 years or longer. Clients may be surprised to learn that they may be more able to obtain credit post bankruptcy and there is much that can be done to bring back healthy scores. Even with perfect scores, a debtor with high income to debt ratio may find it impossible to finance a purchase such as a car if their debt obligations eat up their income.

A torturous and unrealistic debt consolidation plan that drags out for a decade can make the negative credit impact last so much longer. Plus there are other considerations, skimping on important items like retirement savings or forgoing on health and/or disability insurance has potentially much more devastating long term implications not to mention stress, emotional paralysis, and strained relations within the family. Credit score worries may be overshadowed by these important concerns.

No one should tell you whether you should file for bankruptcy. It is a personal decision. Every good attorney knows it is their job to explain the process, explore any issues in your particular case, help you weight pros and cons, and file an accurate petition on your behalf while making the process as stress free as possible. We explain the collection process, discuss alternatives such as debt consolidation, settlement, or simply doing nothing within the context of your circumstances. Bankruptcy practice is truly unique in that as attorneys we interact with a wide variety of people and problems. It touches on other parts of life and law such as family issues, taxes, secured transactions, and business. Ultimately each person must consider all the implications and decide what makes sense for them and their family.

This article explained how the bankruptcy process can actually help a bad credit situation. You should consult an attorney for insights into your individual case.

Disclaimer: The information above should not be construed as legal advice nor as creating an attorney-client relationship.

Kathryn U. Tokarska, Esq. is admitted to practice in State of California. Graduate of California Western School of Law in San Diego, California, Ms. Tokarska concentrated her legal studies in area of Bankruptcy, Estate Planning, Taxation, Securities Regulations, and Real Estate Finance. She has over fourteen years of experience working for major financial investment institutions, offering financial planning services, investment products, wealth building and preservation strategies. Ms. Tokarska holds a Financial Paraplanner certificate, was a licensed stockbroker, and is currently enrolled in an LL.M. in Bankruptcy/Finance at Thomas Jefferson School of Law.

For assistance, contact Tokarska Law Center online, by Emailing Us, or by phone (619) 285-1992. We are a FEDERAL DEBT RELIEF AGENCY. We help people file for Bankruptcy Protection under the Federal and State Laws.

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