In a previous blog post we have discussed how long filing a bankruptcy will impact your credit score. Today we are going to discuss how much filing a bankruptcy will hurt your credit score.
The reality is, nobody knows exactly how much a bankruptcy will impact your credit score. There are five different areas that are reviewed that help formulate your credit score. Exactly how your FICO or credit score is determined is kept secret. However, we know filing for bankruptcy will have a negative impact on your credit. The amount of that impact will vary depending upon what your credit score is before filing the bankruptcy and the makeup of your prior credit history.
In our experience working closely with our clients, if you have a pretty good credit score at the time of filing a bankruptcy you can anticipate about a 100 point drop. Again, this will be different with everyone. Also, if you have a lower credit score then the decrease will not usually be as much.
Although filing for bankruptcy will hurt your credit score, simply doing nothing to address your debt may create an elongated process to poor credit as well. The key is, if you have debt you do not believe you can recover from, filing for bankruptcy may hurt your credit initially, but it will allow you to begin the process to rebuild your credit. Whereas, if you don’t file a bankruptcy but only continue to pay minimums on your debts then you would just continue to have average credit and you will be spending a ton of money by paying interest, late fees and penalties. Of course, falling behind on monthly payments will also chip away at your credit score as well.
The best thing is to talk about your specific situation with an experienced bankruptcy attorney. An experienced lawyer can explain the process and help you determine whether filing a bankruptcy makes sense in your situation.