Sometimes, it may seem like bankruptcy is the only option you have at the moment. However, it’s important to remember that bankruptcy isn’t something that’s done and over with in a matter of months. It’s something that will continue to affect you for years to come. While bankruptcy will stand on your credit report for up to ten years, its effect on your credit score is a little different. Here are some important things to know about bankruptcy and your credit.
How Good Is Your Credit Now?
It may seem counterintuitive, but those who have fairly good credit are going to take a bigger hit from bankruptcy than those who have already missed some payments and are delinquent. If you have a low credit score already, it will take a bit of a hit. If you have a moderate to high score, expect it to drop much more. Basically, if your credit score is already low, bankruptcy won’t make it much worse. If you’ve been doing everything you can to keep up with payments, so your score won’t drop, be ready to take a larger hit.
Understand Which Type of Bankruptcy You’re Filing
Most people file either Chapter 7 or Chapter 13 bankruptcy. Overall, both will affect your credit and your credit score in the same way. Both types of bankruptcy can appear on your credit score for ten years, and in some cases, credit reporting organizations can actually report your bankruptcy after that ten-year period is up. For example, applying for a loan in excess of $150,000 is one activity that could bring up your bankruptcy past the ten-year mark.
What’s important to note is that Chapter 7 bankruptcy often involves creditors forgiving debts, while Chapter 13 involves creating a payment plan to pay off as much debt as possible over a period of several years. Lenders may view Chapter 13 more favorably since it shows you did make every effort to pay off your debt.
Can Bankruptcy Help Your Credit?
In the short-term, you can expect bankruptcy to act as a barrier to getting credit and to come up when you least expect it. In the long-term, though, bankruptcy will help you rebuild your credit. Instead of continuing to sink further and further in debt, bankruptcy helps you deal with your financial troubles and start over. It’s often the only option some people have to get their debt under control.
Is bankruptcy the right option for you? Contact the experienced bankruptcy attorneys at Michael F. Kanzer & Associates to discuss your situation today.