Filing for bankruptcy is always a challenging decision. People who have exhausted all their options and cannot get another job or increase their income are faced with few choices. For most, the decision is the last straw to getting their finances back in order. Even though bankruptcy can help secure a better financial future, it isn’t without consequences. It is a serious step that can also negatively affect your credit by appearing on your credit reports and potentially lowering your credit score. Good news – it won’t hurt your credit forever, and there are steps that you can take to speed up the credit rebuilding process.
Chapter 7 and Chapter 13 are the two most common forms of bankruptcy filed by individuals. Depending on which type of bankruptcy you choose depends on how long it remains on your credit reports.
Chapter 7 bankruptcy typically stays on your credit report for seven to ten years from the filing date and allows some or all your debt to be discharged. Upon discharge, a lender cannot collect the debt, and you are no longer responsible for repaying it. Any unsecured debt which you list on your Bankruptcy schedules should be reported as discharged in Bankruptcy once you receive your Bankruptcy Discharge. Any secured debts which you reaffirm should be reported as being current even during your Bankruptcy and can help build your credit score after your Bankruptcy is concluded.
Chapter 13 bankruptcy may stay on your credit report for up to seven years. Unlike Chapter 7, Chapter 13 bankruptcy involves creating a three-to-five-year repayment plan for all or part of your debts. Once the repayment plan is completed, the dischargeable debts included will be discharged.
Much like in Chapter 7 bankruptcy, any unsecured debt which you list on your Bankruptcy schedules should be reported as discharged in Bankruptcy. Any secured debts which you maintain or cure during your Bankruptcy should be reported as being current even during your Bankruptcy and can help build your credit score after your Bankruptcy is concluded..
Lenders may also look at Chapter 13 bankruptcy more favorably than Chapter 7. With Chapter 13, you usually agree to repay a portion of your debt.
Bankruptcies may affect your credit scores for as long as they remain on your credit report (ten years for Chapter 7 bankruptcy and seven years for Chapter 13 bankruptcy). This is because your credit scores are generated based on information found in your report. However, the impact on your credit scores may diminish over time. Your credit scores could begin to recover even with the bankruptcy remaining on your credit report.
Filing for bankruptcy may make receiving credit cards or lower interest rates challenging because lenders may consider you a risk. So, rebuilding your credit as soon as possible can be paramount following a bankruptcy. Here are five simple ways which may help do just that:
If you spot an error, dispute it in writing with each credit bureau that includes it.
It is suggested that you keep your credit ratio below 30%. However, you could potentially rebuild your credit faster by keeping your ratio closer to 0%.
As you repay your balance, the card issuer will report your payments to the three credit bureaus. Paying your balance on time helps you rebuild your credit.
When looking for secured credit cards, compare annual fees, minimum deposit requirements, and interest rates to ensure you get the best deal.
If the primary cardholder makes a late payment or exceeds their credit limit, you could also see a dip in your score.
Deciding to file for bankruptcy isn’t easy. But for some people, it is the right choice. And yes, filing for bankruptcy can hurt your credit score. However, being responsible with your credit following bankruptcy can help you rebuild while waiting for it to fall off your credit report. If you need help deciding what to do to rebuild your financial future, Miller, Hollander, and Jeda are here to help.
Miller, Hollander & Jeda’s founding attorneys began practicing in the early 1970s before putting down roots in the area and joining forces in 1992 to create the Naples, Florida, law firm that bears their names. Since its inception, Miller, Hollander & Jeda has focused on bankruptcy. The goal of our attorneys and our experienced staff, established at the outset and built upon year by year, is to use our extensive knowledge of bankruptcy law to answer the complicated questions you have regarding your financial trouble and help you solve your problems. We take pride in helping clients get a fresh start.