August 9, 2016
Keep in mind not all debt is looked upon negatively. Certain debts can sometimes be seen as “good” debt for credit purposes. Good debt is typically anything that can lead to improved financial stability (a first home mortgage or student loans), that show current payments have been maintained. Bad debts are often transactional consumer type debts that tend not to indicate improvement to financial stability (credit card debt, personal loans, etc). However, an important key to understand is that all debt is potentially damaging to your credit score if it is not paid in a prompt manner.
Automatic Stay goes into effect and stops all creditors’ debt collection actions.More importantly from a credit perspective, within a few months of filing bankruptcy, the negative credit report marks recorded by creditors will no longer have the effect of bringing down a credit score and the credit report will indicate a zero balance owed. Sometimes this in and of itself will help to start turn around your credit score, or at least provide a basis from which you can begin to rebuild without the weight of old debt anchoring your score down month after month.
Bankruptcy discharges the majority of debts, including credit card, medical debt, utility debt, service debt, and personal loans. It can also stop garnishments and lawsuits. Once the debt is cleared, your debt to income ratio will be notably improved, as well as your bad debt ratio, all of which can help improve your credit score.
While bankruptcy may help provide you with a path to improve your credit score, there are many factors to review when considering bankruptcy. To put your mind at ease, or simply to gain a better understanding of the process, please contact one of the board certified bankruptcy attorneys at Keller and Almassian, PLC.