Will Filing Bankruptcy Damage My Credit?

            In a word......yes.  A bankruptcy filing will remain on your credit for up to 10 years.  A bankruptcy is certainly a negative on your credit report.

            However, most of the people I meet with at Halcomb Singler have already tried everything they can think of (and then some) to avoid the filing of a bankruptcy.  Many of them have already gotten behind on payments to some of their creditors or know that it is just a matter of time before they fall behind.  If you are already behind on payments have have mounting debts the fact is that your credit has already been damaged.  And, if you behind on several debts it is unlikely that you are going to be able to obtain a loan (or at least a loan without paying a horrible interest rate) even if you do not file bankruptcy.

           The way I see it a credit score is really one of the least important reasons to file or not file a bankruptcy petition.  What I typically tell my clients is that if you can pay off your debts you should not file bankruptcy and if you are not able to pay your debts while still maintaining a minimal standard of living bankruptcy may be an option.  While this a very oversimplified way of thinking about bankruptcy (and there are many more factors to be taken into consideration before I will advise a person to file bankruptcy), looking at it from a strictly credit score perspective I believe it is really that straightforward.

           Another good way for those considering whether to attempt to pay down their debts or to file bankruptcy is start by writing down a budget.  This should be a realistic budget that takes into account not only set expenses such as mortgage/rent payment, vehicle payment, and utility bills, but also variable expenses such as food, clothing, and entertainment.  I chose to list food, clothing and entertainment because people so often either leave these items off or completely underestimate.  Everyone is going to spend some money from time to time on entertainment even if it is just renting a few movies and everyone spends some money on clothing at some point.  Also, if you can feed a family of 4 for $150.00 please let me know because I would like to go shopping with you so you can teach me how you do it.  What I am saying is that it is important in setting out this budget that you are very realistic because that is how you can see whether you have enough money left over at the end of the month to make payments on your debts.  I typically tell my clients that if you would not be able to pay off your debts (not including house payments) in 5-6 years it might make sense to consider bankruptcy.

           Please understand that there are many other considerations regarding filing a bankruptcy other than credit score and if you meet with me or any other bankruptcy attorney in the Indianapolis area they are going to take them all into consideration prior to advising you as to whether they believe you could benefit from the filing of a bankruptcy.  No two cases are alike so it is important to obtain individualized advice regarding your situation.  As always, if you would like to meet with my at my Carmel law firm please call me at 317-575-8222 or click here and we will get in touch with you to set an appointment.  There is no fee for this initial consultation.