Credit

Ask Jean: Bankruptcy and Your Credit

Posted by Jean

My husband and I are now unable to make payments on our debts since he lost his job two years ago. We’re considering bankruptcy, but we both have good credit scores (over 700). How will bankruptcy affect our credit? – Nancy, North Carolina

Let’s not sugar coat this.  It will likely take your scores down by a couple hundred points.  In fact, filing will have more of an impact on you and your husband because you have good scores than it would on people with so-so scores.  Why?  You have further to fall.  That’s the bad news.

The good is that it might not take as long as you think to rebuild your score after bankruptcy. Declaring bankruptcy remains on your credit report for up to 10 years. But coming out of it determined to make a change – meaning that you always pay your bills on time, and keeping your debt low and manageable – will help you boost your score back up. You also should consider getting a secured card while you’re rebuilding your credit. It looks like a credit card, but works a little differently – you make an initial deposit, which becomes your credit limit. After about 18 months of good behavior, most turn into a regular credit card.

However, before you declare bankruptcy, you’ll need to go through credit counseling to determine if it’s the right option (or an option at all) for you. While it’s possible to come back from bankruptcy with good credit, there are options (such as the debt management programs offered by not-for-profit credit counselors) that are better for your credit and your assets.  To find one in your area, go to debtadvice.org.