How will a bankruptcy filing affect my credit? Will I be able to obtain loans or make purchases after the process is complete? Our firm often receives these questions from perspective clients.
Keep in mind that a bankruptcy filing will put a dent in your credit score. Nevertheless, this short-term effect may be less detrimental than ignoring your bills or drowning in debt. Before we get started about this subject, you should know that there are major differences between filing a Chapter 7 bankruptcy and a Chapter 13 bankruptcy, and how each one affects your credit. This is because some lenders and credit bureaus take filings more seriously than others do.
How a Chapter 7 Bankruptcy May Affect Your Credit Score
First, a Chapter 7 bankruptcy allows qualified debtors to dismiss certain unsecured debts such as medical bills and credit card debt. To qualify for a Chapter 7 filing, you must be able to pass what is known as the “means test”, which is a measure of your income-to-debt ratio. The benefit to a Chapter 7 filing is that it only takes a few months to discharge debts, which you will not have to pay in full.
Creditors and lenders look at Chapter 7 filings more negatively than other forms of bankruptcy, due to the discharge aspect. In most cases, the bankruptcy will appear on your credit report in some fashion for about 10 years.
How a Chapter 13 Bankruptcy May Affect Your Credit Score
A Chapter 13 bankruptcy is very different from a Chapter 7 filing. Through this form of bankruptcy, a debtor enters into a repayment plan. People who do not want to lose assets, have a steady income or do not want to damage their credit as much often favor this type of filing.
Repayment plans through a Chapter 13 bankruptcy typically last three to five years, allowing debtors to make payments in a reasonable fashion on debts. Because of this, this form of bankruptcy typically stays on a person’s credit report for only seven years. Keep in mind that in most cases, this period is only about two to four years after a repayment plan is complete.
Can an Attorney Help Me File Bankruptcy?
As we noted above, while a bankruptcy will damage your credit, the negative effects are only temporary. Often, this is much better than the stress and consequences associated with late or missed debt payments. Our clients have rebuilt their credit after bankruptcy by using secured credit cards and making timely payments on new loans.
In most cases, people with lower credit scores can obtain credit lines at higher interest rates. If you have filed for bankruptcy and take out lines of credit, your credit score should improve if you continually make payments. This means you should be able to obtain lower interest loans in the future.
If you are struggling with debts and/or having issues with your income, a bankruptcy attorney may be able to assist you. Stay up-to-date on bankruptcy law by following our blog or visiting our social media sites like Facebook and Twitter.
Did You Know? During 2014, there were nearly 14,000 Chapter 7 bankruptcy cases filed in Texas courts.
Julian, Crowder & Shuster, P.C. – Lewisville Bankruptcy Attorneys