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Understanding bankruptcy and your credit score

Many individuals and married couples in Ohio carry significant balances on their credit cards. Often, consumers try to manage overwhelming medical bills, credit card payments and other forms unsecured debts by making the minimum monthly payments. If you can keep up with these payments without falling further in debt, all may be well.

However, when minimum payments can no longer be serviced, there may be a strong temptation to tap into home equity or retirement accounts to get back on track. There are many reasons consumers continue to struggle with unmanageable debt. One common reason is the fear that seeking debt-relief assistance may adversely impact credit scores.

While Bankruptcy Will Be Reported On A Credit Score, It May Actually Improve The Score

Filing for bankruptcy will be recorded on your credit score. However, frequent late payments, missed payments and large debt balances also weigh heavily against your credit score. Unfortunately, many consumers who carry large balances already have lower credit scores, and the inability to dig out of debt, for whatever reason, makes it more difficult for them to improve their credit.

The Federal Reserve Bank of Philadelphia conducted research to better understand what impact filing for bankruptcy has on credit scores for consumers who have fallen on hard times. In 2010, consumers who filed for Chapter 7 bankruptcy were carrying an average credit score of 539.2 as calculated by Equifax, one of the three major credit reporting agencies. The time a Chapter 7 bankruptcy case takes varies based upon current caseloads and other factors.

At the time, it usually took about six months to receive a discharge, according to the study. The researchers say that at the time of discharge, the average credit score among consumers rose to 620.3. That is a significant increase and shows that filing for bankruptcy, in many situations, may actually help a consumer's credit score.

Credit Scores Are Only One Factor To Consider

Your credit score is only one thing to think about when debts become unmanageable. In general, retirement accounts are protected in bankruptcy for the vast majority of consumers. Using retirement money to pay current debts can be a costly mistake. If you are struggling with unmanageable debt, you deserve to understand what legal options may be available in your individual situation. Our experienced debt-relief lawyers will not only explain all of your option, but will answer your questions regarding the impact each option will have on your financial health.

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