Bankruptcy’s Effect on Credit

Bankruptcy’s Effect on Credit

 Many individuals are reluctant to file for bankruptcy for fear of how it will damage their credit, but the damage is not permanent and fixable over time.  Bankruptcy can stay on credit reports up to 10 years, taking a significant hit to credit scores.  Credit scores may decrease approximately 160 – 200 points, depending on whether a Chapter 7 or Chapter 13 bankruptcy is filed.  This much of a decrease of your credit score can lower a good credit rating to a fair or poor credit rating and will make it difficult to obtain credit cards or a home or auto loan.  There are ways, however, to raise your credit score, even before your bankruptcy is removed from your credit report.  Taking measures to re-establish your credit score and managing your debts in a responsible and timely manner will increase your credit score over time, even before your bankruptcy is dropped from your credit report.

Chapter 7 Bankruptcy

 If you file a Chapter 7 bankruptcy, it will stay on your credit report up to 10 years.  Since all debt associated with Chapter 7 bankruptcies are discharged within a few months of filing the bankruptcy, these debts will be removed from your credit report a few years before the bankruptcy.  Discharged debts drop off of a report after 7 years compared to the bankruptcy itself coming off after 10 years.  Ultimately, the older the bankruptcy items on your credit report become, the less effect they will have on your credit.

Chapter 13 Bankruptcy

 A completed Chapter 13 bankruptcy will remain on a credit report for as long as 7 years.  Discharged debts of a Chapter 13 bankruptcy will also remain on a credit report up to 7 years after they are discharged.  It is important to note that many debts of a Chapter 13 bankruptcy remain active through the 3 – 5 year payment plan.  This means that discharged debts may remain on a credit report longer than the bankruptcy.

Bounce Back with Shaw Defense

 Bankruptcy will show no mercy to your credit, so it is vital to re-establish credit as soon as the bankruptcy is discharged.  The following is what our experienced bankruptcy attorney at Shaw Defense, Judge Jed Shaw, recommends to begin your credit re-establishment process: obtain store credit cards, apply for a secure credit card, or apply for a car loan.  There are some additional actions that you can take to re-strengthen your credit score.  Keep your oldest credit accounts open and active because the length of credit history factor makes up about 15% of your overall credit score.  In addition to this, make sure that you do not open too many credit accounts because this may appear to be a red flag to credit rating companies, and it is better to have a reasonable number of accounts because you will be able to better manage and keep up with fewer accounts.  The main thing that will heal your credit is time, so make sure that you manage finances strategically and logically and be patient.  For more information on how to improve your credit after your bankruptcy case is settled, contact Shaw Defense and let us figure out what the best plan of action is for your specific situation.

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