Bankruptcy and Your Credit Score: The Impact Explained
Are you struggling with debt and considering filing for bankruptcy? Many people hear the term bankruptcy and immediately hesitate, feeling that it will ruin their ability to make large purchases in the future. Worrying about how filing for bankruptcy will affect your credit score is understandable. After all, you are considering your options to make smart financial decisions!
The Types of Bankruptcy and Your Credit Score
It’s common knowledge that bankruptcy can majorly impact your credit score – but when you think long term, it’s not a negative one. Having debt also affects your credit score, so you will have to choose what works for you based on your situation. The two most common types of bankruptcy do separate things to your credit:
Chapter 7 – When you file a Chapter 7 bankruptcy, your credit will be wiped clean, and you will have to rebuild.
Chapter 13 –Under Chapter 13, you will keep your existing credit and create a payment plan to improve it.
While bankruptcy will stay on your credit report for 7-10 years, it doesn’t mean your credit will not improve before that time. Your credit score will improve 12-18 months after filing for bankruptcy.
How Will Filing For Bankruptcy Affect My Life?
In one way or another, filing for bankruptcy will affect your life and what you can do. You may have trouble, at least for a little while, making large purchases like cars, boats, or homes. Your interest rates on financing may also be higher with a bankruptcy on your record.
On the other hand, once you’ve completed the bankruptcy process, an automatic stay will take effect. This means that creditors are not allowed to attempt to collect any debts that are included in the bankruptcy filing. In addition, you can start rebuilding your credit. As you do so, you’ll likely be approved for new lines of credit with lower interest rates. This can save you money and help you get back on track financially.
Bankruptcy can be a difficult and stressful process, but it is important to remember that improving your credit score over time is possible. With the right strategies in place, you can make an informed decision that will positively impact your life. At Marrs & Terry, we help clients who feel they can’t keep up by guiding them through this process and their options. Your peace of mind is important to us, so no matter what path you choose, we will support you every step of the way.