Bankruptcy and your Credit Score: Questions to Answer
If you are interested in filing for bankruptcy, it is only natural to focus your attention on the benefits and how this will improve your financial situation. At the same time, you need to learn more about the drawbacks, such as how this will affect your credit score and future applications for credit.
Here is the first question you need to answer: how will bankruptcy affect my credit score? In short, this is going to harm your score no matter who you are. That being said, just how much damage is done will be based largely on your score before filing.
If your credit score is already low, filing for bankruptcy can only lead to so much damage. On the other side, if your credit score is good to excellent before filing, it will take a much bigger plunge post-filing.
Will Chapter 7 bankruptcy have a greater impact than Chapter 13? It is a common belief that Chapter 13 bankruptcy is the better of the two options when it comes to how your credit score is affected.
However, this myth has been dispelled time after time. Your credit score will be affected the same regardless of what type of bankruptcy you file for.
Note: there is always the possibility that a future creditor will look at Chapter 13 in a more favorable light, since this means you are repaying some of your debt through a repayment plan.
How long will a bankruptcy remain on my credit report? The answer to this question depends on the type of filing:
- Chapter 7: remains on your credit report for 10 years from the filing date.
- Chapter 13: remains on your credit report for seven years from the filing date.
From this point of view, Chapter 13 is the better of the two options.
Regardless of your credit score at the current time, you should do your best to make decisions that will have a positive impact.
If you decide that bankruptcy is the right decision, it is important to have a clear understanding of the impact it will have on your credit score. The last thing you want is a big surprise down the road.
