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How Does Bankruptcy Affect My Credit?

Posted By Allmand Law Firm, PLLC || 21-Jul-2017

Bankruptcy is a legal process designed to help individuals who are struggling with insurmountable debt, not to punish or mar them in their financial future. Although there are many myths and misconceptions about how bankruptcy impacts credit, and while many people have concerns over their credit scores, it is important to remember that bankruptcy is the beginning of a financial fresh start, and that with diligent effort, individuals who file bankruptcy can effectively rebuild their credit.

At Allmand Law Firm, PLLC, our Dallas bankruptcy attorney take the time to educate our clients about their rights and the bankruptcy process, and equip them with the tools and information needed to succeed in the future. This includes discussions about bankruptcy’s impact on credit, which will depend on the Chapter of Bankruptcy filed under.

Chapter 7

A Chapter 7 bankruptcy filing will remain on your consumer credit report for up to 10 years. As time passes, discharged debts and a filing have less of an impact on your credit score, especially if efforts have been made to rebuild credit. In fact, discharged debts drop typically drop off a credit report before the bankruptcy filing itself (approximately 7 years).

Chapter 13

A finalized Chapter 13 bankruptcy is displayed on your credit report for up to seven years after filing. This is the same for any discharged debts. However, because discharged debts are paid during the three to five year repayment plan, they may remain on a credit report longer than the filing itself.

Creditworthiness

Aside from the amount of time that a bankruptcy filing and discharged debts will remain on your credit report, it is important to understand how they affect your credit. Ultimately, credit is a form of “trustworthiness,” and as the currency of trust is typically time, you will find that a filing has less of an impact in your ability to obtain credit as it gets older. As you make payments toward new obligations, creditors will be more likely to extend offers.

Still, your bankruptcy will affect the type of credit or loans you may be able to obtain, and whether offers have hidden high interest rates or involve subprime lenders. Mortgage lenders will also view bankruptcies differently. For example, you may be eligible for an FHA mortgage in just a year following a Chapter 13 bankruptcy, or two years following a Chapter 7 filing. Wait periods will vary, however, especially in consideration of factors such as your income, current debt, and your down payment.

While bankruptcy may not provide any immediate benefit to your credit, it’s affects are not permanent. In fact, many people leverage bankruptcy to regain their financial stability and build their way to a higher credit score than they had before. In a previous blog, we discussed how to rebuild credit after bankruptcy.

Preparing you for your financial future is a top concern at Allmand Law Firm, PLLC. To discuss your situation and options with a bankruptcy lawyer, contact us for a FREE financial empowerment session.

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