Most people who consider filing Chapter 7 or Chapter 13 bankruptcy ask, "How will filing bankruptcy affect my credit score?" Although a bankruptcy is a negative mark on your credit report, the amount of damage that it will do on your FICO score depends on one key factor: what your credit score is before you file bankruptcy.

Let's say you haven't paid your credit cards in 6 to 12 months. Most of your accounts have been sent to collections and some have even been charged off by creditors. If your debt-to-income ratio is high, meaning, your debts are high in comparison to your income, then your credit has already taken a big hit. In this situation, you can expect your credit to dip slightly – it won't drop too much.

On the other hand, if your credit is in good shape and you file for bankruptcy, then you can expect your FICO score to take a much harder hit, but that doesn't mean the dip has to be permanent.

Bankruptcy is Not a Financial Death Sentence

When debtors play their cards right, their credit scores can increase to the mid to upper 700s within 2 to 5 years of filing bankruptcy, allowing them to obtain attractive auto financing, competitive rates on credit cards, and low mortgage rates. In other words, while bankruptcy may affect your credit score, it is by no means a financial death sentence.

Every debtor's situation is different, but if they work hard after filing bankruptcy to re-establish their credit, they can bring their score up to the 700s long before the bankruptcy falls off their credit report. If you're interested in filing bankruptcy, the best thing to do is speak to an experienced bankruptcy attorney who can create a game plan for you to rebuild your credit as quickly as possible.

It's important for debtors to remember to look at filing for bankruptcy as a business decision. You want to remove the emotions from the decision-making process and determine if a Chapter 7 or 13 is in your best interests.

To find out if bankruptcy is right for you, contact a bankruptcy lawyer today!