First and foremost, you should know that bankruptcy will have a negative initial impact on your credit score. It’s not going to rise when you file.
However, there is a common misconception about this that sometimes keeps people from filing. They think that bankruptcy is the single worst thing they can do to their credit score, and they don’t want to ruin it entirely going forward. This is simply not the case. In the long run, it can actually help.
The Federal Reserve Bank recently did a study that looked at the scores of those who had filed for bankruptcy and the scores of those who had debt problems and decided not to file. They found that the financial outcome was worse for those who did not file than those who did.
The problem is that people who didn’t file still had a tremendous debt load. They still defaulted on payments and had money they owed go into collections. Judgments were passed against them. All of this negatively impacted their credit scores, with those scores dropping as they missed monthly payment after monthly payment.
In addition, those with so much debt could not get credit cards or other lines of credit, so they had no way to positively impact their scores. The only direction they could go was down. Those who declared bankruptcy saw that initial drop, but they could then work on repairing their credit.
While bankruptcy does not work for everyone, this study shows how it can be far better than the alternative, giving you a fresh start. Be sure you always consider your options in Detroit to find the best one for you and your financial future.
Source: Huffington Post, “The Fresh Start of a Bankruptcy May Restore Credit Faster,” Richard Gaudreau, accessed Sep. 29, 2016