Pay charge-offs or file bankruptcy?
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I have 4 credit card accounts that had just been charged-off and sent to collection. Will paying these accounts in the future undo the damage to my credit, or is it better to file for bankruptcy due to my current insolvency?
I wouldn’t rush to file bankruptcy
Paying off derogatory items on your credit report does not improve your score. The damage is done, and only the passage of time can cure it. Derogatory items age of your credit report after 7-1/2 years whether unpaid, paid or settled.
That doesn’t mean that you don’t need to pay off your debts. The collection agencies can take you to court and get a judgment against you. Your debts can balloon because of interest and legal fees. Not to mention that you won’t be able to get new credit with un-resolved charge-offs on your report (See why-pay-off-debts.html for more information).
Filing for bankruptcy won’t remove the items any faster. Individual derogatory items will STILL appear on your report for 7-1/2 years, while the actual chapter 7 bankruptcy will appear on the “Public Records” section of your credit report for 10 years.
Filing bankruptcy only eliminates your liability to pay the debts, but does nothing to improve your credit/score. In fact, it’s the worst thing you can do to your credit. Much worse than 4 charge-offs.
BTW, you can’t just file bankruptcy over a few charge-offs. The conventional wisdom is that $10,000 is the minimum debt for filing a bankruptcy.
Filing for chapter 7 bankruptcy is not free, and cost $2,000 on average. So if your total debt was less than this amount, say $7,000 or so, then these $2,000 would probably be better spent settling your debts for less with the collection agencies.
Good luck
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