Bankruptcy is an option which many debtors are reluctant to consider. While there are potential downsides to bankruptcy, and it is not necessarily appropriate for every debt scenario, it can nonetheless provide a wide array of benefits. One of the most important benefits of bankruptcy is the ability to establish a good credit history once again. Learn more about the importance of a good payment history, and how a South Carolina bankruptcy attorney can help you access this tool to improve your overall credit score.
The Importance of a Good Payment History
According to the Fair Isaac Corporation (FICO), 35 percent of a person’s FICO score is determined by his or her credit payment history. This is greater than any of the other four categories of information. (Amounts owed is 30 percent, length of payment history is 15 percent, new credit is 10 percent, and credit mix is 10 percent.) The “payment history” metric includes payments on credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. In determining the FICO score, evaluators consider: How late the payments were; how much was owed; how recently the late or missed payment occurred; and how many missed or late payment occurred. Older items and small amounts are weighed less heavily than newer items and large amounts.
The Many Ways to Reestablish a Good Payment History
If you are burdened by old debts that you cannot pay down, there are many different options for reestablishing a good payment history. Consolidation of debt allows a debtor to make a single payment to a single creditor, who in turn pays other creditors to satisfy outstanding debts. The consolidation creditor will work with the debtor, prior to consolidation, to ensure that the single payment is a manageable amount which the debtor can afford on an ongoing basis. The debtor’s credit history then shows a history of successful and timely payments to a single creditor, rather than a series of overdue accounts.
In cases with greater amounts of debt – or a greater number of creditors – consolidation may not be possible. In these circumstances, bankruptcy can allow the debtor to legally discharge all of the debt, and start a new history of successful payments. Many debtors are hesitant to consider bankruptcy due to its negative impact on a person’s credit score. However, years of overdue accounts also take a serious toll on the credit score. By starting over with a new payment history, debtors give themselves a chance to reestablish good credit once again. Many debtors are also hesitant to file for bankruptcy for fear that their assets will be seized. While it is true that bankruptcy courts have the authority to seize and liquidate assets, the South Carolina Code of Laws provides for a wide variety of property exemptions. This allows debtors to plan for bankruptcy, apply an exemption to every asset, and ensure that all assets are protected before the bankruptcy petition is ever filed.
An experienced Columbia bankruptcy attorney will help you find the debt solutions that are right for you.