what happens to your credit during bankruptcy?

One myth about filing for bankruptcy is that it will ruin your reputation, your credit, and your future. However, bankruptcy often provides the fresh start you need when you cannot get out of debt. If you’re considering filing for bankruptcy, you need to understand how it will impact your current and future credit score. Below, we discuss how your credit is affected before, during, and after bankruptcy.

How Credit is Calculated

Your credit score is calculated based on your history of making timely payments to creditors and the probability of making payments in the future. There are three major credit reporting agencies in the US that publish monthly credit reports. There are several ways to access these reports online. Some credit card companies give you free access to your report each month. Your credit score can fluctuate monthly and yearly based on the prior month’s payment records. If you have a history of making low or no payments on bills like credit cards and mortgages, you’ll have a lower credit score than someone who makes timely payments in full. The lower your credit score, the harder it is to obtain additional credit. Low credit scores can also affect how you finance purchases like cars or cell phones. It can also impact your security deposits when renting an apartment or setting up utilities in a new home.

Credit Before Filing for Bankruptcy

If you find yourself in a position where your bills and debts are mounting, you may have to choose which bills to make small payments on. Often, credit card and medical debts are the last to get paid. However, these debts affect your credit score the most. If you’re unable to make payments, your credit score will decrease.

Credit During the Bankruptcy Process

What happens to your credit score after filing for bankruptcy depends on your score before and the type of bankruptcy chapter you filed. Chapter 7 bankruptcy (the most common individual bankruptcy) eliminates your debts by allowing you to keep some essential assets and selling off other belongings to help repay creditors. If you file for Chapter 13 bankruptcy, you can keep many of your major assets (like houses and cars) and pay back creditors with a monthly payment plan that spans three to five years.

Regardless of what bankruptcy chapter you filed, your credit score could decrease by 100 to 200 points. Those who had high credit scores before filing will see the greatest decrease. However, those with low credit scores before filing for bankruptcy may see less of an impact.

Rebuilding Credit After Filing for Bankruptcy

You can rebuild your credit score in as little as 60 days after filing for bankruptcy. Obtaining a credit card after filing may be possible, but you will likely have a higher interest rate than before. This is because creditors may believe you’re at a higher risk of not making payments based on your history. The best way to rebuild your credit after filing for bankruptcy is to practice good financial habits. Make timely payments on all bills, including those with new lines of credit. You’ll see your credit score increase several months after making timely payments.

How Long is Your Credit Score Impacted After Bankruptcy?

Chapter 7 bankruptcy stays on your credit report for ten years after filing. Chapter 13 bankruptcy stays on your credit report for up to seven years. How quickly you’ll see your credit score rise will depend on your financial habits after bankruptcy.

Badgley Law: Bankruptcy Attorneys in Orlando, Florida

You can rebuild after filing for bankruptcy. Let our bankruptcy attorneys at Badgley Law Group help you through the bankruptcy process and find the financial relief you seek. Call our office at 407-781-0420 to schedule a consultation. We serve residents throughout Central Florida.

 

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