How Filing Bankruptcy Can Be The First Step to Rebuilding Your Credit

How Filing Bankruptcy Can Be The First Step to Rebuilding Your Credit "The majority of people struggle with the decision to declare bankruptcy, despite the vital role it can play in providing those with overwhelming debt a lifeline to rebuild their financial circumstances. Numerous individuals continue to be influenced by outmoded stereotypes that view bankruptcy protection as an immoral act. Others believe that bankruptcy is a fatal strike to one's credit and that it makes it virtually impossible to become a homeowner or establish credit in the future. These outdated beliefs prevent those in need of bankruptcy relief from doing the one thing that can have the greatest long-term impact on their credit: filing for bankruptcy. Confused? Yes, I stated that filing for bankruptcy could be a crucial step in reestablishing credit.There are those who labor under a mountain of debt for years, attempting to make ""interest only"" payments while the principal accrues and they gradually descend deeper into debt. As negative creditor actions become increasingly oppressive, these individuals descend like a person hopelessly flailing in quicksand. Oftentimes, this only delays the decision to file for bankruptcy, which is virtually inevitable given a person's debt and income. As a family falls deeper into debt, their credit continues to deteriorate, and they struggle financially but make minimal or no progress in either procuring debt relief to improve their lifestyle or in starting over.Here, bankruptcy can play a significant role in rebuilding one's financial life and even enhancing credit. Certainly, a Chapter 7 or Chapter 13 bankruptcy will have a negative effect on a debtor's credit score in the short term. A bankruptcy discharge is, however, a lifeline extended to a debtor drowning in quicksand. Whether you file for Chapter 7 or Chapter 13 bankruptcy, you will receive a discharge allowing you to start over with the majority or all of your debts eliminated. There are exceptions, as some debts may not be dischargeable or may be more difficult to discharge, such as student loans, taxes, or secured debts for which you retain the collateral (e.g., your home or car).When you emerge from bankruptcy, you will have very little or no debt, and the ratio of income to debt is a significant factor in determining a person's credit rating. In addition, the fact that all (or the majority of) prior financial obligations have been eliminated by the bankruptcy discharge means that future creditors should not contemplate these debts. Occasionally, creditors whose debts have been discharged have no incentive to remove them from your credit report, so it is advisable to write to the three credit bureaus and dispute any discharged debts.In general, a person whose debts have been discharged in bankruptcy and who has little or no debt is considered a safer credit risk than an individual who is drowning in quicksand of overwhelming debt and has a truckload of write-offs and collection accounts. A creditor is aware that after a debtor receives a bankruptcy discharge, he or she must wait a considerable amount of time before filing for bankruptcy again. If you begin to rebuild your credit slowly and gradually after filing for bankruptcy, you can actually restore your credit more rapidly by filing for bankruptcy than by delaying the inevitable while drowning in debt.
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