Many people in Connecticut and around the country are reluctant to file for bankruptcy even when their financial situations have become unmanageable and are unlikely to improve. This is often because they have been told that a Chapter 7 or Chapter 13 personal bankruptcy would ruin their credit and make it impossible for them to borrow in the future. While it is true that bankruptcies remain on credit reports for seven or 10 years, the long-term impact they have on credit ratings is largely rooted in myth.
There are situations where a discharged bankruptcy would actually cause an individual’s credit score to go up rather than down. This is because the debts included in bankruptcy no longer have to be paid, and lenders take debt ratios as well as credit scores into consideration when reviewing applications. Another thing to bear in mind is that most people file bankruptcies after long periods of financial struggle, which means their credit scores have likely already fallen because of late or missed payments.
It is widely believed that rebuilding credit after bankruptcy is extremely difficult, but this is yet another debt relief myth. Many credit unions offer what are known as credit-builder loans for people who would like to establish or reestablish credit. No credit is required to qualify because the borrowed money is held by the lender until all of the payments have been made. These loans could be compared to a savings account that does not allow withdrawals for a specified period and charges rather than pays interest. Taking out a personal loan secured by an asset or savings and opening a secured credit card account are two other ways to rebuild credit after a bankruptcy.
When attorneys with debt relief experience meet their clients during initial consultations, they may devote some of the time to debunking the many myths surrounding bankruptcy and credit. When clients considering bankruptcy are worried about their personal possessions being seized and auctioned off, attorneys could explain that this rarely happens in Chapter 7 cases because of state and federal property exemptions.