If you are someone who has considered filing for Chapter 7 or Chapter 13 bankruptcy, you may have wondered how this will affect your credit score. The damage this will do all depends on how good your credit was before you filed. If you have a lot of different debt and very few assets, you will not have good credit. Filing for bankruptcy will definitely make your credit score drop, even if it's just a modest amount. If you could avoid this at all costs and sort out your debt without filing, this will be the best option. Check out Palacios Law Group's previous blog posts for financial advice or more information about Chapter 7 and Chapter 13 bankruptcy. If your credit score was good before you filed for bankruptcy, and then you file for it, your credit score will take a much larger hit after filing. According to FICO (the most widely-used credit scoring company in the U.S.), those with good credit should expect a huge drop in their score immediately after filing for bankruptcy.
Are you unsure whether you should file for Chapter 7 or Chapter 13 bankruptcy?
Chapter 13 requires you to pay back some or all of your debt over a period of a couple of years. Chapter 7 bankruptcy you do not do this. Those who apply for Chapter 13 bankruptcy may be viewed as more responsible or more favorable. These individuals are a better credit risk. To learn more about the difference between the two, check out our other blog posts. There will not be a difference of your credit score by choosing Chapter 13 over Chapter 7.
So maybe you think that no matter what, bankruptcy is the best option for you. Could filing for bankruptcy actually improve your credit score? It will not immediately help you improve your credit score, but for many individuals, it can be a quick way to better your score.
Bankruptcy can actually help you get back on your feet and take control of your financial problems/situation. If you do not file for bankruptcy but continue with late payments or increase the amount of your debt, you will never improve your credit.
Are you wondering if your bankruptcy will affect your ability to get loans or credit? This all depends on what you are looking for. Credit card companies know that you cannot file again for bankruptcy until another several years. They may be eager to contact you for this reason. Credit cards often have high-interest rates. You should be very careful and aware of this.
You will more than likely be able to get a car loan right away. If you are trying to qualify for a mortgage, this may take an extended amount of time.
Bankruptcy definitely does a lot of damage. It can stay on your credit report for up to 10 years. There are ways that you can improve your credit score after bankruptcy. It's all about being responsible with your money and debt moving forward.