Bankruptcy myths abound, and they can often give people the wrong idea about the process. It is time to break down at least one of those myths to show exactly why it does not hold up.
The myth is simple: Bankruptcy is going to put everyone’s credit score on an equal level, no matter how much debt they have.
If this myth were true, declaring bankruptcy with $15,000 of debt would give you the same credit score as someone with $15 million in debt. The idea is that it sets everyone back to some predetermined starting point and then they have to build their credit up again.
This is simply not true. The amount of impact the filing has on your credit score absolutely depends on how much debt you included. The total number of positive and negative accounts makes a difference as well.
If you are discharging less debt, your credit score is not going to drop as far as someone who is discharging a far higher amount. For this reason, if you know that you are going to need bankruptcy eventually, it may be unwise to put it off. The longer you delay, and the more debt you accumulate, the larger the impact to your credit score. Acting quickly can mean you do not have as much rebuilding to do.
Again, this is far from the only bankruptcy myth out there, but hopefully it helps to make things a bit clearer. It is very important to sort fact from fiction so that you really understand all of the options you have.