How Will a Bankruptcy Filing Impact Your Credit Score in Orange County?

If you are dealing with serious financial distress, you are not alone. You may be preparing to file for bankruptcy protection. It is normal to have a ton of questions about the bankruptcy process. You may be wondering: How will filing for bankruptcy protection impact my credit score? The short answer is that a bankruptcy filing is a negative event for your credit—but wiping out your debt could put you on a path towards rebuilding your credit rating. Here, our Orange County bankruptcy attorney provides an overview of the impact that a bankruptcy will have on your credit score. 

What is a Credit Score?

The Consumer Financial Protection Bureau (CFPB) explains that a credit score is simply ”a prediction of your credit behavior.” Still, it is a very important prediction that could have a big impact on your finances. Here are just a few of the many reasons why your credit score matters in Orange County: 

• Qualify for Loans and Credit: Your ability to get a loan (or any type of credit) depends, in part, on your credit score. Indeed, A higher credit score increases your likelihood of being approved for mortgage, car loans, and credit cards. It signals to lenders that you are low risk. 

• Get Access to Better Interest Rates: Beyond approval, a better credit score also impacts the cost of your loan. Indeed, a good credit score can qualify you for lower interest rates on loans and credit cards. That could save you big money over the lifespan of the arrangement.

• Easier to Rent Apartment: In California, landlords often check credit scores to assess potential tenants’ reliability. A higher score can make it easier to secure rental housing. In some cases, it could possibly avoid a higher security deposit being charged. 

A Bankruptcy Will Have an Adverse Impact on Your Credit Score

Filing for bankruptcy protection is a very negative event from the perspective of creditors. Even if it is clearly the right decision, it will reduce your credit score. According to data cited by Experian, a personal bankruptcy filing “can knock up to 200 points off your credit score.” However, the organization cautions that the actual impact will vary widely based on a person’s specific circumstances. The lower (more damaged) a person’s credit score already is, the less of an adverse impact that a bankruptcy filing will have. Notably, there are two main types of personal bankruptcy in Orange County. The impact on a credit score is varies somewhat between them: 

• Chapter 7 Bankruptcy (Liquidation): Declaring a Chapter 7 bankruptcy will have a major impact on your credit score. Notably, this type of bankruptcy involves liquidating your assets to pay off debts. Many debts are discharged outright during Chapter 7. A Chapter 7 bankruptcy will remain on your credit report for ten years. 

• Chapter 13 Bankruptcy (Restructuring): Filing for Chapter 13 bankruptcy—which involves restructuring and repaying debts over a three to five-year period—also negatively affects your credit score. However, it is somewhat less damaging than Chapter 7, as it demonstrates an effort to repay debts. A Chapter 13 bankruptcy will remain on your credit report for seven years. 

Why Filing for Bankruptcy Can Still Be Good for Your Credit Score (In the Long Run)

There is no question that a bankruptcy is an adverse event from the perspective of creditors. Any bankruptcy will cause an initial drop in your credit score. The better your credit score is, the bigger the initial impact is likely to be. With that being said, filing for bankruptcy can actually be good for your credit rating in the long run. Here are the two key reasons why a timely bankruptcy petition may actually be the best way to get your finances (and your credit) back on track in Orange County: 

• If You are Falling Deeper in Debt, Your Credit is Already Being Damaged: Filing for bankruptcy might seem counterintuitive when considering ways to repair the health of your credit, but it can sometimes be the best step towards financial recovery. One of the key reasons is that your credit is likely already being hurt badly by missed payments. If you are falling deeper into debt, your credit score is likely already suffering. Each month that you miss payments, exceed credit limits, or accrue more debt, your credit report reflects these negative activities. By filing for bankruptcy, you can stop the continuous damage. 

• You Can Start Rebuilding Your Credit Once Bankruptcy is Filed: Beyond that, filing for bankruptcy provides a structured path to start rebuilding your credit. Once the bankruptcy is officially filed, it acts as a reset button. To be sure, you should expect a significant initial drop in your credit score. However, that can be seen as a “bottom.” Once bankruptcy is filed, you are legally protected from creditors—which means no further harassment or lawsuits that could worsen your credit situation. You can move towards a clean slate—and a sustainable financial situation—that allows you to start rebuilding your credit score. 

How Our Orange County Bankruptcy Attorney Can Help You Rebuild After a Filling

Bankruptcy is complicated. The goal of a personal bankruptcy filing—whether you are filing for Chapter 7 or Chapter 13—is to fix your finances and set you up for a better, brighter future. Our Orange County, CA bankruptcy lawyer Le’Roy Roberson has the skills and experience to put you in the best position to rebuild your credit. We provide free, comprehensive, and confidential initial personal bankruptcy consultations in Orange County, California. 

Speak to Our Orange County Bankruptcy Lawyer Today

At Resolve Law Firm, APC, our Orange County bankruptcy attorney is compassionate, experienced, and focused on helping clients find the solution that works best for them. Personalized guidance and support is a must. If you have any specific questions about bankruptcy and credit ratings, we are here to help. Contact us today for your free, no obligation initial appointment. Our legal team offers results-focused bankruptcy advice all across Orange County.