There is no questioning that filing for bankruptcy is something that can have all sorts of impact on your life. For instance, it’s a major life decision that might affect your employment opportunities, where you can live and might even affect your relationships with others. Quite clearly, it might be a full-on life-changing event.
It might also have a detrimental effect on your credit score. Are you aware that filing for bankruptcy can stay on your credit report for up to 10 years?
Unfortunately, in some circumstances, not filing for bankruptcy might also have a negative effect on your credit score. In other words, any step that you decide to take – to file or not to file – might come with repercussions. But as one would expect, opting for the lesser evil of the two options might work to your advantage.
By filing for bankruptcy, you are given an opportunity to have your debts resolved, and such might be done by either discharging them all together or by abiding by a court-ordered payment plan.
Still cannot make up your mind as to which way you should go? Continue reading. Below are some of the things you need to know about the effect of bankruptcy on your credit score:
How Long Will Bankruptcy Stay on Your Credit Report?
Actually, bankruptcy as well as the debts associated with it will mar your credit report in different manners. For instance, a completed Chapter 13 bankruptcy, which is also sometimes referred to as wage earners bankruptcy, might stay on your credit report for as long as 7 years.
In addition, all of your discharged debts may remain on your credit report for up to 7 years after they are discharged. The debts that were dismissed might stay on your credit report longer.
Such can happen because in a Chapter 13 bankruptcy your debts may remain active until the end of the payment plan that can last anywhere from 3 to 5 years. So yes, all of your discharged debts might stay put even after your bankruptcy filing.
On the other hand, a completed Chapter 7 bankruptcy, which is also known by other names such as liquidation bankruptcy and straight bankruptcy, might stay on your credit report much longer – up to 10 years. Furthermore, all of your discharged debts can remain on your credit report after 7 more years, generally speaking.
So whether it is Chapter 13 bankruptcy or Chapter 7 bankruptcy, it’s inevitable that you will have to face the fact that all of your debts that were discharged might outlive bankruptcy itself on your credit score.
Is It Possible to Improve Your Credit Score after Bankruptcy?
The good news is your credit score doesn’t have to look horrid for the rest of your life after filing for Chapter 13 bankruptcy or Chapter 17 bankruptcy.
There are a handful of things that you may do, which might improve your credit score:
- Reinstate credit score ASAP. The goal in this strategy is to prevent your report from having a “hole”, meaning there is a long time period in which you seem to have no credit at all. And this is why it is a good idea for you to apply for credit as soon as the bankruptcy is discharged so that you may have your credit history reinstated as well as your credit score rebuilt. Such can be commenced by the likes of applying for secured credit cards, store credit cards or car loans – yes, any one of these is possible despite of your credit report being tarnished.
- Be careful when grabbing credit card offers. Right after having your bankruptcy completed, you might receive new credit card offers. Before grabbing any one of those tempting offers, do your homework first and remember to read the fine print.
- Refrain from applying for many different accounts. Lastly, even if there is a strong urge for you to apply for numerous accounts, desist from doing so. According to CreditCards * Com, about 10 percent of your FICO score is established by whether or not you have recently applied for new accounts. Although it’s true that applying for new credit might help rebuild your score, it’s might be a good idea for you to consider spreading your applications over time.
*The information provided in this article should not be considered legal advice that can only come from a qualified attorney. Paralegals may not provide legal advice except where permitted by law.
Picture Credit: pexels