How Bankruptcy Affects Your Credit Score, And How To Manage The Ebb and Flow

Bankruptcy is a great way to get your life back on track. It can stop collection calls, lawsuits, and wage garnishments from happening to you any longer. Bankruptcies also erase debt which allows you to start fresh again with money in the bank account rather than just barely scraping by every month paying bills!

“Bankruptcy may even help improve or maintain credit scores," says one expert who specializes in helping people deal with their debts through bankruptcy proceedings." Credit bureaus and scoring experts often say that bankruptcies are the single worst thing an individual can do for themselves when it comes time of deciding what they want done about their financial problems. Foreclosures, repossessions, or charge-offs.

People who file for bankruptcy have an average credit score of about 640, whereas the national median is 719. But these numbers are only telling part of the story because most people with debt struggle so long before they're able to take action that their scores typically drop by 100-200 points when filing. When a discharge happens, which wipes away all debts in bankruptcy court and can raise someone's score up to 200 more points on top of what it was prior!

But that’s not even close enough to paint an accurate picture just yet: The study found there were two groups where “credit risk declined significantly after declaring Chapter 11 (bankruptcy). One group had low FICO Scores at baseline but increased substantially over 10 years. 

If you're thinking of filing Chapter 7 bankruptcy, make sure your credit score is in good standing beforehand. Researchers at the Federal Reserve Bank of Philadelphia found that filers' Equifax scores plunged before they filed and rose steadily after discharge had been granted to them. The average person who filed for bankruptcy in 2010 had a 538.2 on the 280-850 range scale; their post-discharge scoring was 620 points higher (620).

The other more creative type of bankruptcy is Chapter 13, which typically requires a three to five year repayment plan. Half of those who filed for the chapter between 2007 and 2013 were dismissed or converted into another form of bankruptcy by the Justice Department. Of those that completed their payment plans though, they saw an increase in credit scores from 535 point 2 to 610 points 8 according to research done at Philadelphia Fed researchers on Justice Department figures

Chapter 7 was favored over Chapter 13 because it only required wiping out debt instead of trying repayments monthly like with 12% converting later; however after completing payments about half have seen improved credit score results as well
A recent study by FICO found much smaller gains from bankruptcy. Median credit scores for people who filed between October 2009 and October 2010 rose from 550 points before they filed to 560 after. This is because most of their debt was discharged in a fresh start-up plan or got written off due to lack of funds on behalf of creditors as well as reducing what future money owed them would be worth if it were paid back at all.

After two years 28% had scored 620+ and 1% 700+. After four years 48% passed this benchmark with only 2 percent scoring below 640 points!

But the FICO study didn’t distinguish between Chapter 7 and Chapter 13 Bankruptcies, or with folks who got a discharge and those who did not get a dischage. Those with undischarged debt no their credit scores could be skewing the results substantially. In other words, people with completed bankruptcy filings could have seen much bigger gains than what is reflected in median figures according to Dornhelm.
What does this mean for you? 

The answer may not be as simple as it seems if your goal was saving money on interest rates for car loans or mortgage payments after filing bankruptcy proceedings; there are many things that come into play when determining how much of an effect it will really have on your credit score once again - such as having some debts discharged due to nonpayment. 

"End to collection hell" is a term that describes the ways in which one can get rid of debt, and it's now easier than ever. If you have fallen behind on your bills because you are experiencing financial troubles (i.e., making late payments or no payments at all), this may sound like an impossible task: but according to research from Nosal, there are two main paths out of collections-- bankruptcy filing for either Chapter 7 or 13 reorganization programs; alternatively, negotiating with creditors by requesting reduced monthly installments so as not pay off what seems insurmountable today."

An end to "collection hell": There’s more than just paying off debts when trying overcome financial difficulties. It is always good to contact a bankruptcy attorney in your area to help you navigate the laws.