Credit scores are one of the many reasons why many Americans fear filing bankruptcy. People think that after bankruptcy they will never be able to buy a home or a new car and even more important, get more credit cards. The last one is kind of funny, because that is usually the reason that people get into trouble financially and end up having to file for bankruptcy. These are just urban legends that creditors want the debtors to believe. If they could scare people into believing that they will never be able to buy anything on credit after filing bankruptcy, they believe people won't file.
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For the most part, they are getting their message out. One of their compromises that they push is debt consolidation, and charging off the debt. Creditors know that when someone is pushed to their financial limits the only option the debtor will have is to file bankruptcy. That's why it's smart for them to get something rather than nothing. You know the old expression, you can't squeeze blood out of a turnip.
People fear that their credit score will be completely ruined by filing bankruptcy. This is not true. The greatest damage a person could have on their FICO score is the number of late payments the debtor has. The later the debtor pays, the worse the score. There many other factors involved also, and it is true that bankruptcy will have an effect that will lower the score.
I don't know why a consumer gets so caught up worrying about filing bankruptcy because of damage to their credit score when they can't pay their bills. In the first place, if you can't afford to pay the monthly bills obviously you'll have a gaggle of late pays. Looking at it from this standpoint, your credit will already be in the dumpster and because of that debt there is nothing that will make it better. That's why when the damage is already done filing bankruptcy won't do that much more to your scores. When you file bankruptcy the automatic stay will stop all collection activity against you giving you time to get your thoughts together deciding on what's really important. When the whole process is done the debtor will have a clean slate to build their credit from. With the interest compounding on credit cards it might take a lifetime to get out of debt without filing bankruptcy.
Credit is still available to those who file bankruptcy. The downside is the debtor will have to pay a higher interest rate. So it doesn't mean you won't be able to buy a house or a new car just because of the bankruptcy filing. As long as you have solid steady income your debt ratios will actually be lower than they were prior to filing bankruptcy. Looking at it a different way, consider the amount of debt you are wiping out in the bankruptcy filing and look at the added interest that you'll pay because of the higher rates, you'll see that you're still saving quite a bit by filing bankruptcy. Depending on the amount of debt you have, when you consider the discharge of a large amount of debt with the bankruptcy filing, it might be worth having bad credit for a couple years.
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