One of the most common concerns expressed by potential clients is whether or not a Chapter 7 will ruin one’s credit. While the answer is no, it will not ruin one’s credit, it does have an effect. Your decision to file a 7 may depend on whether or not the effects are more beneficial than detrimental, but remember: after Chapter 7 bankruptcy, financial problems are much easier to solve.
HOW CREDIT WORKS
Your credit score, which is important for things like purchasing a vehicle and opening a line of credit, has several important components. Each component is grouped in with other like components, and these groups are worth a certain percentage of your credit score. For example, maxed out credit cards are part of a group worth thirty percent of your score, while fifteen percent of your score depends on how long you have had any sort of credit at all. Every component is weighted similarly, leading up to an accurate numerical representation of your financial history and predicted financial future. The more healthy your credit score, the more likely lenders and landlords will be to trust you.
How Bankruptcy Affects Credit
Bankruptcy belongs in a group that is worth thirty-five percent of the total credit score, so the effect it has is smaller than most believe it to be. Bankruptcy will lower your overall credit score, and may make you ineligible for loans or new credit cards for a few years; it will also remain on your credit score for years after your bankruptcy. Having a bankruptcy on your record will make lenders, landlords, and other such entities less inclined to trust your word, simply because it makes you look financially irresponsible.
So Why File Anyway?
As any good Draper bankruptcy attorney will tell you, if you are at the point of bankruptcy, a Chapter 7 will not make it any harder to take out a loan or establish a line of credit. If you are severely in debt, your credit score is already far from healthy, so entities responsible for those kinds of transactions are already disinclined to trust you to repay them. A bankruptcy may cause a drop in your credit score, but it also stops your score from declining further and further by digging you out of your debt. Ultimately, you may not be able to take out a loan immediately, but you are more likely to be able to take out a loan in the future.