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Your credit score after bankruptcy

One common reason why people hesitate to file for bankruptcy is because they worry about how this action will affect their credit scores. While it is true that a bankruptcy will leave a mark on your credit rating, it is also possible that taking this step will provide you with relief from debts you could not otherwise manage. In fact, for many people, their debt situation has already damaged their credit rating.

Understanding the consequences of a bankruptcy is an important first step if you are considering this plan. The type of bankruptcy you qualify for will also determine how much of an impact the process will have on your credit score.

What are my options?

You may qualify for Chapter 7 bankruptcy, which some people call liquidation bankruptcy. If you pass the means test, which calculates your income, assets and debts, you may be eligible for the discharge of many of your unsecured debts, such as medical bills and credit cards. However, this discharge occurs after liquidating some of your non-essential assets to pay what you can to your creditors.

Chapter 13, on the other hand, restructures your debts so that you repay as much as you can over a certain period of time, after which your creditors may forgive the rest.

What's the damage?

Each of these types of bankruptcy may affect your credit in different ways. Chapter 7, for example, typically drops your score about 200 points. Your credit history will also carry a bankruptcy mark for about 10 years. With Chapter 13, you can expect a similar drop in your score, but it will remain for seven years. You may also need permission from the court to apply for loans during that time.

Interestingly, the 10 and seven years that the mark remains on your credit is the maximum amount of time. There is no minimum. You also have a great deal of control over your credit history. Once you have filed for bankruptcy, you can begin right away to repair and rebuild your credit by vigilantly monitoring your credit and reporting any mistakes, budgeting your money carefully, and applying for a secured credit card.

What's the upside?

The good news is that a bankruptcy on your credit report begins to fade in importance the longer you maintain good financial habits. Paying your bills and budgeting your money show good faith to any potential creditors. You may find the extra work you do to keep yourself financially afloat is more rewarding than struggling week after week to pay your debts. If you still have questions, you can consult with an experienced Virginia bankruptcy attorney to find the answers.

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Michael D. Hart, P.C.
19 Church Street Southwest
Roanoke, VA 24011

Phone: 540-627-6520
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