Filing bankruptcy is typically a last resort action for most people. It is a process in which individuals eliminate different types of debt they might have. Deciding to file for bankruptcy is a life-altering decision— one of the main reasons why is the lowering of one’s credit score.
Consumers usually file one of two chapters of bankruptcy, while others do exist. These are Chapter 7 and Chapter 13. We will review these types of bankruptcy and how they impact your credit score. Furthermore, there are ways to raise your credit score even after bankruptcy.
Chapter 7
This type of bankruptcy allows you to liquidate specific assets and property. The money from this liquidation helps wipe out the debt. However, not many people have enough assets to offset their debts. What happens in these cases? The courts will often absolve the debt even if there is not enough money to pay it off.
When you file this type of bankruptcy, you face impacts on your credit score for potentially up to ten years.
Chapter 13
When you file for this type of bankruptcy, you can discharge certain portions of your debt. For example, some individuals might choose to put aside their medical bills. This allows you to pay off other debts that you have. With Chapter 13 bankruptcy, you can continue to make those payments for a three to five-year period.
This type of bankruptcy impacts your credit score less, and it will only remain on your credit score for up to seven years.
Comparing Options
Out of the two aforementioned chapters, Chapter 7 bankruptcies tend to be more impactful on your credit score. Chapter 13, however, allows you to make regular payments and absolve some of your debt without the need to forfeit any of your property.
Improving Your Score
Just because you had to file for bankruptcy doesn’t mean your credit score can’t improve again. Your score can improve over a few years by taking small steps such as making payments on time and starting a new credit card with a low line of credit.
Additionally, creating a strict budget for all of your expenses will help you maintain payments on your obligations while prompting healthy organization and decision-making when it comes to your finances.
Without taking intentional steps to improve your credit score, you won’t see the change you are looking for. We offer our “2 Years to 720 Credit Score” program to not only help you rebuild your credit score but to set you up for future financial success. Through our program, we can help you reap the benefits of:
- Lower interest rates
- First choices on houses or apartments
- An easier time applying for credit cards or loans
We do our best to ensure raising your credit score after bankruptcy is simple and straightforward. Contact the team at Blake Goodman, PC, Attorney if you have any questions about navigating the bankruptcy process and how you can help your credit score today!
Blake Goodman received his law degree from George Washington University in Washington, D.C. in 1989 and has been exclusively practicing bankruptcy-related law in Texas, New Mexico, and Hawaii ever since. In the past, Attorney Goodman also worked as a Certified Public Accountant, receiving his license form the State of Maryland in 1988.
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