Kentucky residents with unmanageable financial situations are often reluctant to file for bankruptcy due to the impact it would have on their credit scores. While lenders may sometimes make it seem that filing under Chapter 7 or Chapter 13 personal bankruptcy will make future borrowing all but impossible, the data tells a different story.

Filing for bankruptcy does have an effect on credit scores, but the impact is relatively short lived. While discharged Chapter 13 bankruptcies remain on credit reports for seven years and Chapter 7 bankruptcies are not removed for 10 years, lenders tend to pay far less attention to them after just two years has passed. This is because they know that individuals who have filed for bankruptcy tend to borrow cautiously and are no longer obligated to pay certain debts.

There is also a growing body of evidence suggesting that bankruptcies may actually improve credit ratings. The Federal Reserve Bank of Philadelphia studied the Equifax credit ratings of individuals who filed Chapter 7 bankruptcy petitions in 2010. These individuals had an average credit score of 538.2 when they filed their paperwork, but this figure had climbed to 620 once their bankruptcies had been discharged about six months later.

Lenders offer options such as secured credit cards to those who have encountered financial difficulties in the past. Attorneys with experience in this area could go over these options with individuals who are reluctant to take advantage of the fresh financial start that the nation's bankruptcy laws make possible. Attorneys may also dispel many of the other misconceptions and myths surrounding personal bankruptcy.

Source: NerdWallet, "5 Bankruptcy Myths Dispelled", Sean Pyles, June 7, 2016