Deciding to file for bankruptcy is never easy. In addition, most people worry that their credit scores will hit rock bottom and they will never be able to get another loan, even at a high interest rate.

Here's good news: Often, the damage done to your credit score isn't nearly as bad as you might expect. In fact, in time, most people improve their credit scores and get new loans at favorable rates.

One reason your credit score may not decline as much as you fear is because most people who have financial problems already have a poor to mid-range credit score. Their score has already suffered due to late payments, a high debt-to-income ratio, charge offs and collection problems.

This means, after filing for bankruptcy, you could see your credit score improve. This is because when you declare bankruptcy, you erase almost all records of late payments, charge-offs for unpaid debts, and high credit balances.

As a result, depending on which type of bankruptcy you file, the accounts wiped clean by bankruptcy are flagged as "Included in Chapter 7 Bankruptcy" or "Included in Chapter 13 Wage Earner Plan." And since you are a better credit risk after bankruptcy, having erased most of your debt, you may see your credit score improve.

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