By Robert J. Semrad | Published September 29 2022 |
Will Bankruptcy Hurt or Improve my Credit Score in Illinois?
Many people are hesitant to take advantage of the relief offered by Illinois bankruptcy laws because they’re concerned about the hit their credit score will take. However, the truth is that ultimately, it will recover. In fact, it can be better than ever, as filing allows you to discharge debt, get your finances in order, and start a new path to more financial freedom.
How Filing for Bankruptcy Can Help Your Credit Score?
For a significant number of people, bankruptcy will ultimately have a positive effect on their credit score, despite the initial drop in points. For instance, your debt will be reclassified as "discharged in bankruptcy." Before you file, past due debt will show up as delinquent accounts. But once they are discharged, they will no longer be considered delinquent.
Filing can also help improve your debt-to-credit ratio. This is one of the most significant score factors taken into account for FICO and VantageScore calculations, making up almost 1/3 of the credit scoring system. By discharging your debt, you can reduce the ratio, likely improving your score.
Finally, you can lay the foundation for building a positive financial history. Many people who are struggling to manage their finances or make ends meet feel like they are drowning; as if there’s no way out. An Illinois bankruptcy allows you to essentially start fresh and begin taking steps to have a healthier financial life.
How Filing for Bankruptcy Can Hurt Your Credit Score?
In the state of Illinois, a filing will remain on your report for 7 to 10 years. Typically, there is also an initial dip in your score. However, even though it stays on your record for so long, the positive effects of filing normally exceed the original hit.
The majority of people who turn to bankruptcy have been struggling with debt for a while, and by the time their petition is filed, they often have many severely delinquent accounts. For this reason, it’s common for their credit scores to increase after they file and to significantly improve once their debts are discharged.
Tips on How To Rebuild Credit Score After Filing For Bankruptcy
The journey isn’t over once you file. If you don’t learn how to rebuild and maintain your progress, you will find yourself in financial difficulty again before you know it.
Regularly reviewing and monitoring your financial improvement is essential. Everyone in Illinois has the ability to obtain a free copy of their report at least once per year. If you regularly check your scores from the various bureaus, you will be able to watch them increase over time. This is also a good way to stay motivated.
Finally, one of the best ways to rebuild is to practice responsible habits. First, make a budget based on your income. You should also make your payments consistently and on time, limit your usage, and build an emergency savings fund.
Why Having a Perfect Credit Score is Overrated
Many people in Illinois are incredibly concerned with their financial history. While it’s always important to make payments on time and limit your debt, having the perfect score isn’t something you should stress over. When your record isn’t perfect, you can still secure financing in Illinois – even if you filed for bankruptcy.
Illinois creditors usually prefer to extend financing to someone who has discharged their debts than a person with delinquent accounts. This means that you can typically get a credit card or car loan soon after your file.
Filing can also help you improve your chances of owning a home. When you are buried in debt, your poor record can prevent you from securing a mortgage. But once you file, you can get an FHA mortgage 2 years after Chapter 7 and 1 year after Chapter 13.
Bankruptcy isn’t a process anyone wants to go through, but sometimes it really is the best course of action given your current financial conditions. If you’re struggling with debt or have other legal questions, DebtStoppers is here to help.
Contact DebtStoppers today to schedule a free consultation with an experienced Illinois attorney and start your journey down the path to financial freedom.