For any consumer, bankruptcy should be the last option taken to resolve a debt crisis. When it comes to their credit score, bankruptcy can be considered a death sentence for a consumer. If an individual decides to declare bankruptcy, their credit score will be severely damaged in a way that will take years for them to repair.
When a consumer finds themselves in a great deal more debt than they can handle, whether by bad investments, job losses or simply foolish spending, federal law allows them to declare bankruptcy in order to protect themselves and their remaining assets from creditors. While this option does allow them some leverage in repaying their debts, bankruptcy is also a critical blow to a credit score. While having a house foreclosed on or a car repossessed is highly damaging to a credit score, bankruptcy is even worse.
When an individual declares personal bankruptcy, their credit score is immediately knocked down into levels that any lender would consider completely unsatisfactory. As a result of the bankruptcy, the credit score will remain in these terrible levels for as long as five years before any positive credit moves can be considered to move the credit score up. Any time there is a bankruptcy, the credit score will take a long time and a lot of good moves to start returning to respectability.
To the credit bureaus, a person’s declaring bankruptcy is the ultimate sign that they are incapable of handling their personal finances and an indication that they are unworthy of having any credit lent to them. With bankruptcy, a credit score is harmed in ways that cannot be equaled through any other action, no mater how drastic. With a bankruptcy, the credit score indicates that all the person’s finances have failed, from credit cards to personal loans and any other active lines of credit they have. These negative marks will stay on their credit record for many years before they can be removed, essentially making the individual radioactive to any potential lender in the foreseeable future.