Common myths about the bankruptcy process affects credit
Those in debt who are considering bankruptcy may have concerns about how this legal process will affect their personal credit score and profile.
Many people in Tennessee who consider filing consumer bankruptcy have concerns about the impact this legal process will have on their lifestyle, finances and credit score. While filers are warranted in their concerns, there are many myths out there surrounding how the bankruptcy process actually affects a filer’s credit profile.
Myth #1 — Bankruptcy information stays on a credit report for 10 years
Many people believe that their bankruptcy will remain on their credit report for a full decade without exception. While Chapter 7 bankruptcy does remain on public record for 10 years, any other references of the bankruptcy only last for seven years. These references can include Chapter 13 public record items, third-party collection debts and tax liens and certain trade lines.
Myth #2 — Poor credit is inevitable after bankruptcy
Many people also believe that after they file for bankruptcy, they will have a poor credit score as long as the filing remains on their credit profile. Even though filing bankruptcy does lower a person’s credit score dramatically, filers can still boost their score shortly after by practicing smart credit management. Some filers may even have scores in the “good” credit score range within four or five years.
Myth #3 — Bankruptcy affects everyone’s credit equally
Everyone who files bankruptcy has a different amount of debt and different types of debt. A filer’s credit score and the amount of debt discharged does have an impact on credit score after filing, but those who only discharge a few accounts with a relatively low amount of debt may find that their credit score is higher than someone who discharged more accounts and had a higher total amount of debt.
Myth #4 — All bankruptcy debts get eliminated from a credit report
Some people believe that when they file bankruptcy, all of their debts will be completely removed from their credit report. However, bankruptcy is designed to eliminate the need to repay debts to creditors, so delinquent accounts may not be removed from a filer’s credit profile. These accounts can affect a person’s credit score for up to a decade, but their impact will become less and less as time passes.
Consult with an attorney
In addition to myths about credit scores and reporting, there are many other misconceptions that surround the bankruptcy process in general. Those in Tennessee who are considering consumer bankruptcy should speak with an attorney to ensure they receive factual information, so they are able to make an informed decision.