One of the main concerns people have about bankruptcy is how it will affect their credit. While filing for bankruptcy does not cause damage to your credit, there are some credit consequences indirectly associated with the process. However, understanding these issues can prevent misconceptions and missed opportunities for utilizing a potentially valuable debt relief resource.
Effects of Delinquency
The bulk of credit damage is done long before a person files for bankruptcy. Missed payments, delinquent account standings and late fees are all contributing factors to the credit damage associated with debts. The bankruptcy process actually works to improve one’s credit by removing delinquency statuses and negative account remarks. After a debt discharge in bankruptcy, most people find that their credit actually improves. Further, bankruptcy provides a clean slate for rebuilding credit that would have taken much more time and effort to repair without the help of bankruptcy.
When people say bankruptcy damages credit they are simply referring to the fact that obtaining credit in the future can be more difficult. Some lenders may be less willing to approve credit for applicants who have a bankruptcy on their credit report. However, this does not mean that securing credit after bankruptcy is impossible. In fact, there is an entire market of lenders that focus on lending to post-bankruptcy consumers. The only cautions here are that the terms and conditions of such lines of credit will be less preferred than those offered to someone without a bankruptcy. The main point is that anyone can secure credit after bankruptcy with a little patience and due diligence.