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Will bankruptcy hurt your credit?

The answer is, yes. Bankruptcy will hurt your credit rating. On average, filing for bankruptcy will reduce your credit score by about 120 or 130 points. That said, it may be a necessary move in order to resolve debt issues that could plague you for a lifetime, and resolving this debt will eventually have a positive effect on your credit score. Let's look at some of the most common credit rating killers that bankruptcy will resolve.

Foreclosure: Having your home foreclosed on is traumatic because it will cause you to lose your family residence, as well as the money you have already invested in it. It will also hurt your credit score, causing an average person with a 680 FICO score to drop between 105 and 125 points. In the long run, bankruptcy may be preferable to a home foreclosure. You may still have your home and you will also resolve your debt troubles to improve your credit rating in the long run.

Late credit cards: If you are 30 days late on paying your credit card, you will also get hit with a big drop in your credit score -- by about 60 to 80 points. That one time you were late paying your card could haunt your credit report for a full seven years.

Other credit score killers: There are other things that can harm your credit rating, like settling debt with your credit card company and maxing out your credit cards. Ultimately, if you are in a situation where late bills, toxic debt and foreclosure are threatening your credit score, you might want to consider bankruptcy as a way of resolving these issues once and for all.

Source: Forbes, "The Fastest Ways To Wreck Your Credit," Lauren Gensler, Dec. 30, 2015

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At the law offices of William H. Oliver, Jr. & Associates in Toms River and Lakewood, New Jersey, we represent clients in Toms River, Neptune, Trenton, Middletown, Red Bank, Wall, Lakewood, Lakehurst, Manchester, Asbury Park, Old Bridge, Jamesburg, Barnegat, Forked River, Manahawkin, Ocean Township, Brick, Manasquan, Howell, Freehold, Hazlet, Bradley Beach, Brown Mills, Long Branch, Keansburg, Marlboro, Bayville, Beachwood, Whiting, Sayreville, South River, East Brunswick, Monmouth County, Ocean County, Middlesex County, Burlington County and Mercer County.