One of the big questions people who are going through bankruptcy often have is: how will filing for bankruptcy affect my credit? Should it be assumed that their credit scores are doomed forever once the bankruptcy case is filed?
While, yes, bankruptcy does take a hit on a credit scored, this does not mean that all hope is lost.
It can be virtually impossible to predict how a filing will affect one’s credit score. Much of how a credit score is affect depends on the information in the person’s credit report, as well as where he or she stands at the time of bankruptcy. It also can depend on what type of bankruptcy is filed and whether the person filing for bankruptcy has filed before.
How long the bankruptcy stays on someone’s credit report can depend on the type of bankruptcy that was filed and whether it was the first filing or whether any previous filings were not completed successfully. It can all be relative depending on the filer’s situation and a bankruptcy attorney can advise best on what to expect.
A Chapter 13 bankruptcy filing will stay on the filer’s credit report for up to seven years. Debts that were discharged will also stay on the report for up to seven years after they are discharged.
Many debts remain active during the pendency of the Chapter 13 bankruptcy until the end of the three to five-year payment plan, the debts that are discharged sometimes end up staying on the credit report longer than the bankruptcy takes.
Once the Chapter 7 bankruptcy process is successfully completed, it can stay on the person’s credit report for up to ten years. However, one benefit is all of the debts that were a part of the Chapter 7 bankruptcy were discharged by the time the case is complete, they will be off of the credit report fairly quickly.
Compared to the ten years that the bankruptcy stays on the credit report, the discharge debts are normally dropped after seven years.
If the debtor is concerned about what will happen to his or her credit score once bankruptcy is filed, it is possible that he or she can explore other alternatives to avoid bankruptcy. The debtor can attempt to pay the debt on his or her own or enter into a payment plan with the creditor.
He or she can also try to enter into a formal debt management plan with a credit counseling agency. Consolidating debts could also be a possibility but only if the debtor can feasibly manage to continue making payments on one larger debt than multiple small ones.
Lastly, the debtor can reach out to the creditor to see what can be done to settle on the debt if it is in default. If none of these options work, filing for bankruptcy might be the best option.
While bankruptcy does stay on someone’s credit score, so do default proceedings. It sometimes is best to weigh the two evils to see which one will hurt the least.
Once the bankruptcy case is complete, it is time for the debtor to get his or her credit back. It may take awhile but it is possible. The first step will be to review the debtor’s credit report to see where he or she is and how far he or she needs to go to get back to a good spot.
Credit reports can be obtained for no cost online on an annual basis. After the first review of the credit report, it is recommended the debtor review the report annually to check on progress and to ensure that nothing is on the report in error.
Another important step, one that may seem too easy, is to pay bills on time. A debtor’s payment history is a big part of his or her credit score. Showing that the debtor can continue to meet obligations on a timely basis will go a long way in improving credit scores.
It is also said that to build credit, you sometimes need another credit card. However, before jumping at the first offer that comes in the mail, with someone who has just filed for bankruptcy, a secured credit card is the best way to go.
A secured card is one that comes with a security deposit. It allows debtors to show that they can make payments on debts owed but also gives creditors a sense of security in that a deposit is there if the debtor does not pay.
Secured cards come with high fees, though, so once the debtor’s score starts to improve, it is recommended he or she closes the secured card and goes with one with a lower rate.
At RLC Lawyers & Consultants, we are here to walk you through this stressful process of bankruptcy. To request to schedule a free consultation, please call us at (561) 571-9610 today.