Can Filing for Bankruptcy Help You Fix Credit?

Share this article:

Filing for bankruptcy should be your last resort in trying to fix your credit. This is a complicated process and filing for bankruptcy will require the services of a debt counsellor and an attorney.

What is bankruptcy?

When you file for bankruptcy, you are telling the creditors that you have no money to pay the debts and that you don't expects to have such amount in the near future. In many cases, filing for bankruptcy can help you lessen your debts because your creditors are willing to make arrangements to get some amount as payment from you. Bankruptcy cases can scare your creditors because once the bankruptcy has been finalized, you will be relieved from paying your debts from some of your creditors.

Creditors are willing to negotiate a lump sum payment

When you file for bankruptcy, many of your creditors will be willing to negotiate for a final payment for your debts. They might be able to settle for a lump sum amount as payment for a fraction of your debts. They will choose this option over not receiving anything from you at all.

Creditors will offer you other payment terms

Once your creditors receive the notice that you have submitted the documents for bankruptcy, many of them will contact you to offer payment arrangements so that you will reaffirm your debt with them. These payment arrangement offers might include lowering the interest rate or giving you sufficient time before you make your next payment.

Some creditors will offer you debt reaffirmation

This option is usually for your house and car debts. Because you are allowed to keep the house where you live and one personal vehicle after your bankruptcy, your creditors will allow you to make the regular payments after your bankruptcy has been approved. However, if you miss a payment, they can still repossess these properties, as before.