How bankruptcy affects credit scores
People in Florida who are unable to pay back all of their debts may consider filing for bankruptcy. The process can eliminate most unsecured debts that are owed or help debtors to establish a repayment plan that they can afford. While there are many benefits to filing for bankruptcy, one of the drawbacks is that bankruptcy will lower a person’s credit score.
Initially, a declaration of bankruptcy will probably lower a person’s credit score more than any other single event has in the past. A person with a FICO score in the mid-700s could lose 200 or more points while a person with a score in the 600s could lose about 130 points. Post-bankruptcy, most people can expect to have ‘bad credit” with a FICO score that is under 600.
After the initial credit score hit, who has declared bankruptcy may be able to rebuild their credit relatively fast. As long as no new delinquencies appear on a person’s credit report after bankruptcy, their credit score should rise back to its pre-bankruptcy level in about five years. A consumer may help to speed up their credit score recovery by applying for a secured credit card and making on-time payments.
A lawyer may be able to help a person to decide whether filing for bankruptcy is the best solution to overwhelming financial obligations. Some debtors may qualify for Chapter 13, which involves a restructuring of their obligations pursuant to a payment plan that lasts from three to five months. This method could be preferable for those with regular sources of income, and an lawyer can explain the eligibility requirements in detail.