In America, our entire economy is based upon the credit system.  Without it, we would not be able to operate as we always have.   That is exactly what is happening right now: the credit freeze has effectively stopped the economy from moving, and everyone is suffering.  Because of the monumental losses that many businesses and individuals have sustained in the credit and housing markets, a wave of foreclosures and bankruptcies are occurring all over the country.  Even individuals who invested wisely and planned carefully are seeking the protection of a Chapter 7 or Chapter 13 bankruptcy, or simply handing the house keys back to the bank and walking away.  If you are considering either option, knowing how a bankruptcy or foreclosure will affect your credit is a strong move toward making a rational financial decision.     Let’s face it- if you are considering filing bankruptcy, or are in danger of a foreclosure, you have probably already examined and tried a number of reconciliatory actions.  How much of a concern should the impact of a bankruptcy or foreclosure on your credit be?  Well, in most cases, the only other viable option is to continue struggling and falling farther behind- damaging your credit all the more.  So what makes more sense- to file bankruptcy or foreclose now, or continue letting serious delinquencies and collections activities farther damage your credit for some time to come?  The fact of the matter is that, after a foreclosure or bankruptcy, the only direction your credit can go in is up.  It certainly cannot get worse after filing a bankruptcy- unless you are blatantly irresponsible with your finances.  Which, if you’re reading this blog, then you’re probably not.     In plain terms, a bankruptcy has a substantial impact on your credit.  While the effects will change and lessen over time, a bankruptcy will appear on your credit file for not more than ten years.  It tells future lenders that at one time your debts were insurmountable, and that some companies probably lost money as a result.  However, a bankruptcy is hard, and it is a lot of work.  Therefore, it also tells a future lender that you took drastic steps to liquidate and discharge your debts legally and fairly in a federal bankruptcy court.  Under certain circumstances, this can be viewed favorably, and that coupled with the fact that you cannot file bankruptcy again for eight years can get you a loan immediately after a bankruptcy.   According to Sperling’s BestPlaces, an online population and demographics data provider, homes in Suffolk County, New York depreciated in value by more than one half percent over the last year.  With trends like that, it’s no wonder that so many homes in Suffolk & Nassau County and elsewhere are going into foreclosure.  And just how badly will the credit of those that face foreclosure suffer?  Unlike a bankruptcy or a settlement, a foreclosure’s effect on credit is subjective.   Often, banks will lend a mortgage to someone who has experienced a recent foreclosure.  Generally speaking, a reduction in credit score of up to one hundred points can be expected.  However, a foreclosure is deemed to be outdated information after it has reported to the credit bureaus for seven years.  After this time, the foreclosure will be removed from your credit files, although it will still appear in public records.     One consideration that is easily missed is that, if you are on the brink of bankruptcy or foreclosure, you are probably not going to be rushing out and attempting to procure new credit anyway. So, why let that be a major concern?  While maintaining good credit is an important issue, you should remember that, even if damaged, credit can be easily repaired with good financial decisions and patience.  Bookmark this blog to learn how!       –

This entry was posted on Friday, October 31st, 2008 at 7:30 am and is filed under Long Island Bankruptcy, Nassau & Suffolk County, Repairing Credit. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.