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Will I ruin my credit score if I file for bankruptcy?

Many people in Ohio and elsewhere who are struggling with overwhelming debt may have considered filing for bankruptcy to find relief. However, bankruptcy has a stigma attached to it that may prevent people from filing simply because they worry about what will happen to their credit scores. While your credit score will certainly take a hit after you file for bankruptcy, it may recover faster than you think.

How long will it take to recover?

One of the first things you must realize is that your credit score was likely already low before your decision to file for bankruptcy. Having too much debt in relation to your income and missing payments can drag your score down. In fact, researchers who analyzed data from Equifax determined that people's credit scores decreased dramatically in the months prior to them filing for bankruptcy. After filing for bankruptcy, their credit scores started to rise.

Data from 2010 shows that the average credit score for someone who files for Chapter 7 bankruptcy is around 538. Within six months of debt discharge, the average score rose to around 620. The rise was a little more modest for those who filed for Chapter 13, but those who completed the payment plan and got a discharge saw their scores increase from around 535 to over 610.

Statistics from FICO, one of the industry leaders in determining credit scores, showed that 28 percent of those who filed for bankruptcy saw their credit scores increase to 620 or more two years after filing. The percentage increased to 48 percent four years after filing, and 1 percent had credit scores in the 700s.

It must be noted, however, that these statistics did not distinguish between those who filed for Chapter 7 versus those who filed for Chapter 13 and those who got a discharge versus those who did not. With that in mind, the percentage of people who saw marked increases in their credit scores after successfully filing for bankruptcy and discharging their debts may be higher.

So is bankruptcy my best option?

The choice to file for bankruptcy is not an easy one, nor is it a decision to take lightly. However, if you are struggling to make ends meet and you are constantly harassed by creditors and debt collectors, filing for bankruptcy may be your best option. To make the best informed decision, you should consult an experienced bankruptcy attorney. A lawyer can analyze your situation, advise you of your options and represent you throughout the process.

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