Client meeting with bankruptcy attorney

Can Bankruptcy Help My Credit Score?

By Derek Prosser

Although bankruptcy provides relief to people whose finances have gotten out of control, it is not without its downsides. For example, bankruptcy stays on a person’s credit report for several years after filing. In addition, bankruptcy can negatively affect a filer’s credit score. Surprisingly, however, bankruptcy may actually help a filer’s credit score under certain circumstances. In this article, we discuss how bankruptcy can help your credit score.  

Bankruptcy’s Effect on Your Credit Score

Bankruptcy’s effect on your credit score will largely depend on how high or low your score is when you file. If you have a high credit score when you file, you’re likely to see a significant drop after bankruptcy. If your scores are already low, on the other hand, you may experience an increase. So, depending on your personal situation, after you obtain bankruptcy relief, you may find that bankruptcy has actually helped your credit.

Bankruptcy’s Short-Term Positive Effects on Your Credit Score

In the short term, bankruptcy may help your credit score in the following ways: 

Bankruptcy gets rid of delinquent account reports: Bankruptcy will effectively remove high balances and late payments from your credit history. Instead, these types of debts will be reported as discharged instead of delinquent. Depending on your situation, this change in the classification of these debts could boost your credit score.

Bankruptcy can improve your debt-to-credit ratio: Approximately 30% of your FICO credit score is made up of amounts you owe on accounts. Therefore, when your debts are discharged in bankruptcy, this may improve your debt-to-credit ratio, and this can potentially improve your credit score. In other words, the lower your debt is in comparison to your available credit, the more your score may increase. 

Bankruptcy’s Long-Term Positive Effects on Your Credit Score

Bankruptcy can also have long-term positive effects on your credit score, including: 

Bankruptcy gives you a fresh financial start: After filing for bankruptcy, you are given a fresh chance to get your finances under control. By budgeting properly and being disciplined with your money, you can improve your overall financial situation and your credit score.  

Bankruptcy allows you to rebuild your credit history: Without the burden of the debt you discharged by filing for bankruptcy, you will likely have more income available to make new credit payments on time. By establishing a history of paying your debts when they are due, you can increase your credit score. 

Contact a Dallas Bankruptcy Lawyer 

If you are considering filing for bankruptcy, Toronjo & Prosser Law is here for you. At our firm, our bankruptcy lawyers will provide you with informed representation and dependable service in your bankruptcy case. When you come to us for assistance with your bankruptcy case, our talented attorneys will work closely with you to ensure that you receive a fresh financial start. Contact us today to arrange a meeting with an experienced Dallas bankruptcy lawyer

About the Author
Derek Prosser understands that clients need help and need answers and that in order to properly address those concerns, clients need to deal with an attorney first and always, not just an assistant or paralegal.  By effectively counseling from the outset of a case, Toronjo & Prosser Law can anticipate and address potential problems before they arise, as opposed to when they’ve already surfaced (the “Counsel Later” approach), and, in the end, strive for a seamless representation.