Filing for bankruptcy is usually considered a last-ditch effort. Even though the thought of erasing or reorganizing your debts can seem like a comforting situation, bankruptcy can have long-term effects on your finances. This is never a good quick fix, and you should advise your bank if you are considering going down this road. You need to think about your future investments and credit if you come to this point. Here is how bankruptcy can affect your credit score and finances:
Your score will drop
When you're taught about finances, you are told that your credit score is extremely important. This three-digit number can help you get approved for a mortgage and other loans. Filing for bankruptcy can be one of the worst things that can happen to your credit, as it can cause your score to plummet. A low score can be tough to come back from, so explore all your options before you decide to go through with this.
Credit report is affected in the process
In some instances, lenders and other financial institutions can give you a little leeway with a low credit score. They will instead check out your credit report to assess your financial standing. But if you have filed for bankruptcy, it could stay on your report for a while, which won't help you out. Under the Fair Credit Reporting Act, a Chapter 7 bankruptcy, the most common type, may stay on your credit report for up to 10 years. That is a long time for this blemish to remain and can have serious impacts on your long-term investments.
Negative effects will eventually wear off
Repairing your credit can be tough in bankruptcy, but the impact will decrease over time. That is not to say lenders will turn a blind eye, but if you keep up with your credit payments and maintain a good financial standing after you filed for bankruptcy, lenders will work with you more.
How to help yourself
Building your way back from bankruptcy can be tough, but it is not an unattainable goal. You can help yourself by making payments on time, decreasing your balance or refinancing your account to a secured credit card. Showing banks and lenders that you are responsible will only help your situation.