If you’ve accumulated debt and your financial situation has begun to feel out of control, you may be considering bankruptcy. This option will get you back on your feet and keep creditors at bay. However, it will also have an impact on your credit score, depending on whether you file for Chapter 13 or Chapter 7 bankruptcy. Find out more about the potential effects below.
How Bankruptcy Affects Credit
Chapter 13, or reorganization, bankruptcy allows you to keep your property. But you’ll need to be approved for a court-mandated repayment plan and successfully make payments to prevent the liquidation of assets.
Once you’ve completed the plan, any remaining debts are discharged. Nonetheless, these debts can remain on a credit report. Ultimately, the bankruptcy can lower a score for up to seven years.
Like Chapter 13, Chapter 7 bankruptcy can significantly lower your credit score. It can decrease even a good score by up to 220 points, potentially bringing it down from good to poor.
Chapter 7 bankruptcy is also referred to as liquidation because most assets are sold to repay debts. Typically, this option is reserved for people whose income cannot cover the debt they have accrued.
The bankruptcy itself will stay on a credit report for up to a decade. Debts can also continue to linger on the credit report for up to seven years.
How to Improve Your Score
If you do decide to file for bankruptcy, continue to watch your credit score closely for potential errors. You can also reestablish credit by only taking out an affordable line of credit and making monthly payments in full and on time.
Consider a secured credit card, which requires a lump sum to the card company upfront. While there are often fees associated with this type of card, it can be a foolproof way to restore credit as you recover from bankruptcy.
If you’re considering filing for Chapter 13 or Chapter 7 bankruptcy, allow Greg Dunn, Bankruptcy and Debt Relief Attorney, to help. Specializing in bankruptcy assistance, this Honolulu, HI, attorney has more than 25 years of experience helping clients resolve their debts and rebuild their financial futures. Find out more about the firm’s services online, or call (808) 524-4529 to schedule a free consultation.