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Taking Your Bankruptcy Medicine

June 27, 2011

There is no denying it: the bankruptcy process is unpleasant. It is not easy to meet with an attorney, disclose detailed information about your personal finances, or file a federal bankruptcy case to discharge debts. However, bankruptcy is a legal remedy that can help an individual who desperately needs relief from an overwhelming debt burden. The bankruptcy process can turn around an unhealthy situation and put you on a course to financial well-being.


Some clients ask whether bankruptcy will destroy their credit score. Well, the short-term answer is, "Yes." In the short-run your credit score will drop and it takes time and patience to recover. Typically, one to two years of responsible post-bankruptcy credit management is required before a credit score is returned to the "average" range.


While the immediate drop of your credit score after bankruptcy is sharp, the effect on a credit score from debt negotiation can be slow and painful. Debt settlement is known by many names including “debt settlement” or “credit counseling” and includes any debt relief program in which the creditor receives less than full payment or agrees to terms different from the original credit contract. During any settlement or repayment program missed or late payments are reported to the credit bureaus until the debt is satisfied. If the debt is settled for less than full payment, your credit report will negatively reflect that the creditor settled for less than 100%. This could mean years of negative reporting before your credit can start to recover. Additionally, you may receive a tax bill for any debt amount that was settled. The IRS calls this a "forgiven debt" and considers the savings as part of your income.


On the other hand, a Chapter 7 discharge takes around four months, start to finish. At the end the debt is discharged, and your credit report will state that the debt was "discharged in bankruptcy." The federal law dictates that the report of bankruptcy is the last negative information that can be recorded on your credit file concerning a discharged debt. You can start rebuilding your credit immediately after your discharge and without the burden of unpaid debts.


If you are considering bankruptcy to relieve you of financial difficulty, speak with a qualified and experienced bankruptcy attorney. The federal bankruptcy law offers powerful protections for individuals struggling with debt. Call (214)890-0711 and learn how a Texas bankruptcy lawyer can quickly eliminate your debt.

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