Bankruptcy’s Effect on Your Credit Report in Maui

How Does Bankruptcy Affect Your Credit Score?

When individuals have overwhelming debts, are facing mounting bills, and experiencing non-stop phone calls and text messages, filing for bankruptcy might be an option for a way out. However, before making this decision, it is crucial to understand how bankruptcy affects your credit score. Debt Settlement Lawyers in Maui can provide valuable guidance on alternative solutions and help you navigate the complexities of debt relief, ensuring you make an informed choice.

Some might say that bankruptcy has a negative effect on your credit score, and at the same time, some might say that it helps to improve your credit score. You might be wondering what the truth is.

Well, the truth is that if you have a huge and unmanageable debt load, and you’re suffering from delinquencies, collection efforts, lawsuits, foreclosures, or car repossessions, then your credit score will surely reflect all these negative items already. In such cases, filing for bankruptcy helps you to enhance your credit score, and rehabilitate it quicker than almost anything you can do. Therefore, in the long run, you will obtain a fresh start free from your debts and have a better credit score compared to just letting things remain in a state of chaos.

Learn About Our “2 Years to 720 Credit Score” Program!

We are one of the few bankruptcy law firms on Maui that not only helps you receive a discharge of your debts but also assists you to rebuild your credit after your case is over. By enrolling you in our “2 Years to 720 Credit Score” program, you will receive expert guidance on how to take small steps on a weekly basis which will restore your credit back up to a 720 score or higher within about a year or 2.

We have a team of highly experienced bankruptcy lawyers who can help you to qualify and file for bankruptcy and provide you with debt settlement and tax resolution options. Our attorneys can provide you with the right advice and guidance, and when it’s done, we can indeed raise your credit score within a short period of time with our specialized credit score help.

What is a Credit Score?

A credit score is a number that describes your credit history and foresees the possibility that you will default on the repayment of a debt. Credit scores are used by lenders to make a decision about whether you should be given a loan, and if so, at what interest rate.

One of the most common types of credit scores is the FICO score, ranging from 300 to 850. A FICO score relies on your credit report information, which includes:

  • History of your debt repayments
  • Debt amount you presently have, which includes your debt-to-credit balance ratio
  • The different types of debts you have
  • How long you have had credit
  • Whether you’ve recently applied for new credit

Generally, a high FICO score means that you’ve been good at managing your financial situation. On the other hand, a low FICO score means that you’re experiencing trouble with credit repayments.

How Can Bankruptcy Help You to Improve Your Credit Score?

Once you have accomplished bankruptcy relief, you may realize that the bankruptcy helped in raising your credit score (although the bankruptcy will stay on your credit report for a maximum of 10 years in the case of filing a Chapter 7 bankruptcy, and 7 years for the filing of Chapter 13).

Relief from Delinquent Reports

Does your credit report include high credit balances and late payments? If so, then understand that the bankruptcy discharge can act as a benefit to you. The bankruptcy got rid of all those debts, and therefore, they are no longer marked as delinquent.

Enhance Your Debt-to-Credit Balance Ratio

The amount you owe on your accounts comprises approximately 30% of your credit score. A crucial factor is the percentage of the available credit that you are using. Bankruptcy might aid in improving your debt-to-credit ratio because the ratio is actually a comparison of your positive debts, such as your non-delinquent car and house payments, to your credit balance available. Thus, without so much debt, your unused available credit presents an improved ratio, and the higher your FICO score gets.

Can I Still Take Out Loans?

One of the major concerns that people who apply for bankruptcy have is that they will never be able to take out a loan ever again. This is not true. Just because you have applied for bankruptcy does not mean you will never be able to buy a house or car again. In fact, many of our clients have been able to apply for — and be accepted for — new mortgages while still going through the bankruptcy court process.

Good Debt vs. Bad Debt

The biggest impact you will feel from bankruptcy is initially having higher credit interest. So, a missed payment on a credit card bill is going to hurt much harder after bankruptcy than it would if you were in good credit standing.

Of course, the best way to avoid being in debt is to not put yourself in debt. In some aspects of life, this is doable. Make payments on time, budget appropriately, and do not spend more than you have — but there are some debts, that for the average person, are unavoidable. This kind of debt can be considered “good debt.”

What is Good Debt?

Good debt is typically a large-scale purchase the average person can’t pay for upfront, so they take on a loan to pay for it with a payment plan. These are cars, mortgages, etc. Many people also like to have credit cards for large purchases such as repairs, and this can be good debt too. As long as you are making payments on time, paying off your credit card bill on time, and making housing payments and car payments, then you are taking advantage of good debt.

By making these payments, you are raising your credit score. As time goes on, your credit score will rise to a point where, despite having a bankruptcy case on your credit history, you will be in good credit standing.

What is Bad Debt?

Bad debt is exactly how it sounds. The kind of debt that is going to not only harm your credit score but can quickly put you right back into bankruptcy court if you aren’t careful. Bad debts are loans that aren’t being paid back on time, missing payments on your house or car, and stacked up credit card interest. This is the exact kind of debt that got you in this situation in the first place.

If you want to make sure that you are never in this situation ever again, then you may need a lifestyle change. If you sign up for our “2 Years to 720 Credit Score” program, we may be able to help you make those necessary lifestyle changes.