People who are considering filing for bankruptcy may hesitate out of fear for how it will impact their credit report. In general, a bankruptcy filing will appear on your credit report for 7-10 years, depending on what chapter you filed under. It can be more challenging to be approved for new lines of credit during this time, but thankfully there are ways to begin rebounding sooner than you thought. Here is what may happen to your credit after filing for bankruptcy:
Your Credit Score
Once your credit report has a bankruptcy status listed on it, your credit score may go down. The degree to which your credit score is hit will depend on whether you had great or poor credit before filing. How a bankruptcy filing impacts one person can vary to the next since there are so many variables that make up a person’s score and credit report.
Relieving Debt Obligations
Bankruptcy is a resource that can truly dig many people out of their current financial hardships, but bankruptcy should not be filed for without understanding both the potential benefits and impact on your credit. Bankruptcy can be useful if the amount you have accumulated in debts vastly surpasses how much you earn. It can help reduce the number of financial commitments, but in exchange it will negatively impact your credit.
Depending on the bankruptcy chapter you choose, you may experience a relief in debt through a repayment plan that fits what you can afford or paying off debts through liquidating assets. A bankruptcy lawyer, like an affordable bankruptcy lawyer Las Vegas, NV, can help you decide whether it is time to file for one of these six bankruptcy chapters:
- Chapter 7 (liquidating assets)
- Chapter 13 (repayment plan)
- Chapter 12 (for fisherman or family farmers)
- Chapter 11 (business repayment plan)
- Chapter 9 (financial reorganization for municipalities)
- Chapter 15 (handling foreign debts)
How Bankruptcy Will Appear on Credit Report
During the process of filing for bankruptcy, you will have needed to report all the creditors that you currently have a debt with. What will happen next is these accounts will still show up on your credit report, but the debts that were discharged will show a status of “discharged” with a zero balance. Despite it now saying you don’t owe that creditor anything, when you apply for new credit, a lender may see this and deny your credit application.
However, there is reason to be hopeful and not get dismayed, as these discharged debts will no longer have a note on your credit report that says “past due” or “unpaid” associated with them. There is bound to be relief knowing those financial burdens have been eradicated. Your credit score may be temporarily low, but in the long-term, filing for bankruptcy may still be the right decision. Over time, your credit score will start to rebound, especially with those debts listed as zero dollars owed. The most crucial step moving forward is remaining responsible with your credit now that so much has been cleared and not letting it get out of control again.
Thanks to Ballstaedt Law Firm for their insight into what will happen to your credit after filing for bankruptcy.