O'Brien Law Firm, LLC - Bankruptcy

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How bankruptcy affects credit scores

Mississippi residents who are coping difficult financial situations are often reluctant to pursue debt relief because they are worried about what a bankruptcy will do to their credit ratings. While a Chapter 13 bankruptcy will appear on credit reports for seven years and a Chapter 7 bankruptcy will show up for 10 years, how they actually affect borrowing is more influenced by the actions taken after a bankruptcy has been discharged.

Many people are surprised to learn that filing for bankruptcy actually improves credit ratings in many cases. It is widely believed that credit ratings are based solely on payment histories. However, the amount of debt an individual has is another crucial factor in calculating credit scores. When bankruptcies are discharged, the amount of debt is usually reduced and credit scores may actually go up.

Consumers tend to wait until their situations are quite dire and bill collectors are hounding them every day before pursuing bankruptcy. This means that their credit scores are often already badly damaged when they do take action. Bankruptcy offers a fresh start, and lenders may be more willing to extend credit to an individual who has a discharged bankruptcy and fewer obligations than they would to someone who is struggling to bring delinquent accounts up to date.

Attorneys familiar with the nation’s bankruptcy laws could answer questions about debt relief and explain how credit ratings can be rebuilt following financial setbacks. Legal counsel may also point out the differences between Chapter 7 and Chapter 13 personal bankruptcies and dispel many of the debt relief myths that prevent individuals with unmanageable financial situations from taking advantage of debt forgiveness.