The effect that filing for bankruptcy has on a credit report varies based on the type of bankruptcy that is filed. For individuals who live in Virginia, the most common bankruptcy filings are Chapter 7 and Chapter 13. A bankruptcy filing under Chapter 7 might stay on a credit report for up to 10 years while a Chapter 13 filing might be reported for seven years. However, the effect on the credit score will diminish as time goes on.
Chapter 7 bankruptcy is sometimes referred to as liquidation bankruptcy because the petitioner's non-exempt assets are liquidated to pay down debts. This form of bankruptcy results in the forgiveness of most types of debt, including medical bills, personal loans and credit card debt. A filing under Chapter 7 might cause the filer's credit score to drop by up to 200 points. Filers can expect most of their debts to be discharged at the conclusion of a Chapter 7 bankruptcy, and they might be able to keep important assets that are exempt.
Chapter 13 bankruptcy is often referred to as a wage-earner's bankruptcy because it's designed for individuals who have regular income but cannot keep up with debt payments. In a Chapter 13 bankruptcy, the court establishes a payment plan by which the petitioner is required to pay down debts for a period of three to five years. Debts remaining after that are wiped clean.
An attorney who practices bankruptcy law in Virginia could help someone who is struggling to pay down debts. The lawyer might examine the client's financial circumstances and help them choose from the debt elimination or debt reduction options available. This includes checking to see if the client can pass the Chapter 7 bankruptcy means test.