Most people who file bankruptcy worry about how bankruptcy will impact their credit scores. Obviously, filing bankruptcy does negatively impact a credit score. If you are struggling to pay your minimum payments and have not defaulted on any of your debt, you may have a very good credit score even though bankruptcy is the best course of action.

We are conditioned to strive to obtain a great credit score. A good credit score is as important as the cost of future credit is based in large part on a credit score. Sometimes, what makes a credit score high is timely paying a large amount of debt. If you pay off unsecured debt, such as credit cards and signature loans, your credit score improves, you can take on more credit. If you pay off a mortgage, a car, or pay your taxes on time, you may not see an improvement in your credit score. In this turbulent economy, the wiser decision may be to pay down a mortgage, a car, and you always want to pay your taxes on time.

Bankruptcy will definitely substantially lower a credit score. Yet, shockingly, Chapter 7 bankruptcy filers often receive offers for new credit scores before they even get out of bankruptcy! When you file a Chapter 7 bankruptcy, you cannot file another bankruptcy for at least 6 years. So, you make a great credit slave again!

Rethinking Credit Score Impact

Perhaps it’s time for people to think about what’s really important – having a paid-for home and decent transportation for work and making sure taxes are paid. Maybe taking too much pride in a high credit score while being just one paycheck away from collapse is foolish.

Younger people who don’t own a home worry that bankruptcy will keep them from ever qualifying for home financing in the future. This is not true. You may be eligible for consideration in 2 years for many types of home financing. This does not mean that you will get financing. You may also pay a higher rate of interest for the financing. Your credit score is not the only factor considered in qualification – your income level and your debt level are important, too.

Bankruptcy can impact a credit score, but you should focus primarily on your life. The bottom line is: don’t be credit score-driven. Think of where you are in life, what the right thing to do is, and what you need to accomplish for your own financial peace. Act accordingly. Consult a bankruptcy attorney who can help guide you in making the best choice for your circumstances.