Filing for bankruptcy is a serious decision with many consequences. But some of those consequences are positive ones.
The removal or restructuring of personal debt allows individuals to get a clean slate for their financial future, wiping away all the stress that comes with such debt. But there are negatives as well, of course.
One consequence that is often on the minds of individuals filing for bankruptcy is the impact it will have on their credit score.
While it is true that your credit after bankruptcy will take a hit, it is not quite as devastating as many people believe it to be. How much of an impact bankruptcy can have on your credit, and how long it stays on your credit report, will depend on a few factors.
If you file for bankruptcy, it is going to appear on your credit report. There is no way around this. However, the exact length of time it will stay on the report depends on which chapter your bankruptcy is filed under.
The two most common categories for personal bankruptcy filings in the U.S. are Chapter 7 and Chapter 13 bankruptcy.
In Chapter 7 bankruptcy, a trustee sells (liquidates) any non-exempt property belonging to the individual filing for bankruptcy. In exchange, that individual’s debts owed to creditors are eliminated.
A Chapter 7 bankruptcy filing will remain on your credit report for 10 years after the date of filing. Note that the date of filing is different from the date of discharge, which is the date after which debt collectors can no longer attempt to collect debts.
Chapter 13 bankruptcy differs from Chapter 7 in that its end result is the rearranging of personal debts, rather than cancellation.
Under Chapter 13, an individual is able to submit a plan for repaying their debts under the protection of the court. A Chapter 13 bankruptcy filing will remain on your credit report for 7 years after the date of filing.
There is no way to avoid taking a slight credit hit after filing for bankruptcy. However, unless you had a great credit score beforehand, this will not have quite as big of an impact you might think. Also, rebuilding credit after bankruptcy is not impossible.
As mentioned above, a bankruptcy filing will not linger on your credit report forever. Additionally, there are ways to help rebuild your credit after the fact.
Two of the most straightforward steps you can take to start getting your credit back up in the immediate aftermath of filing for bankruptcy are to focus on making on-time payments, and not borrowing money too fast.
If you borrow money too quickly after bankruptcy, you may soon find yourself back in the same position. Focusing instead on your existing payments (things like property taxes, student loans, etc.), and making sure all of your payments are made on-time and in the right amount will be good for your credit in two ways.
First, it will show future creditors that you are financially responsible and able to be trusted.
Second, it is a good opportunity for you to develop responsible financial habits.
If you do find yourself in a position where filing for bankruptcy is necessary, it is crucial for you to bear in mind that bankruptcy is a chance to restart, not a chance to spend money freely.
Once you have filed for bankruptcy, you will be granted the opportunity to manage your finances comfortably and responsibly.
The more disciplined you can be with your assets after bankruptcy, the better your credit will be in the long run.Parker & DuFresne are one of Northeast Florida’s most trusted and experienced law firms when it comes to bankruptcy and foreclosure law.
If you believe bankruptcy may be in your best interest, contact us today to set up a free consultation and let us help you decide your best path forward.
It’s important to hire an experienced bankruptcy attorney as one of the steps to take when you’re facing bankruptcy, and you are worried about credit rebuilding after.
This is because there are many different types of bankruptcy. Only an experienced lawyer will know which one would work best for your specific situation.
It might seem like it makes sense to do this yourself. But most people don’t have the time or patience to understand all of the details involved in bankruptcy. That means they make mistakes by not choosing the right type, or by not filling out paperwork correctly. Both things could lead to delays and ultimately hurt your chances of getting any debt relief at all.
This is not a journey to take lightly, but it is also not one to take alone. If you need to file for bankruptcy, reach out to us today to start your journey with us.
If you want to learn more about the options you have and steps to take, call us for a free consultation.
Parker and DuFresne