Will filing bankruptcy hurt my credit? Probably.
Should that hit to your credit keep from filing bankruptcy? Not by a long shot.
Incredibly, I encounter people drowning in debt who think their credit report is more important than their financial health.
Their thinking seems to be that credit, once damaged, is never the same.
It’s not so.
A blow to your credit is not permanent nor even long lasting.
Your “credit”, or really, your worthiness for new credit, is almost a living, breathing thing. It can suffer a blow and recover.
Credit hit is like a cut
Whether you choose debt settlement, debt management or bankruptcy, the solution will damage your credit, in the short run.
Think of the damage like a wound.
The wound bleeds, it exposes the rest of your body to infection. It hurts.
Think of bankruptcy as antiseptic. Douse the wound with antiseptic to kill infection and promote healing and it hurts…but the hurt fades.
Over time, the wound closes and scabs over. It isn’t painful most of the time.
When it’s healed, there’s a bit of a scar.
Over time, even the scar fades.
Debt is chronic disease
When your debts are beyond paying off in the normal course, it’s like a disease you can’t beat. Persistent symptoms, sometimes progressively worse, other times just ever-present.
Debt saps your energy, consumes your thinking and limits your opportunities.
If your debts are such that you’ve considered bankruptcy, your credit worthiness is probably already compromised. Would any creditor lend you more money at a reasonable rate?
If not, your credit may not be doing you any good at present.
Your balance sheet is what counts
A credit report is a limited history. As time passes, the oldest history falls off the report to be replaced with the snapshot of today’s finances.
If you use bankruptcy to wipe away your old debts, your balance sheet (assets minus liabilities) improves on the spot.
The bankruptcy filing shows on your credit report, in the rear view mirror, for some time. But its significance to lenders fades the farther down the road you get from filing.
But with your old debts gone, even right after you file, you no long look like someone who already has as much debt as they can handle or more.
Take steps to get financially healthy and your credit will recover too.
Image courtesy of Flickr and RambergMedia Images under a Creative Commons license.
