How Bankruptcy Affects Your Credit Score

If you are facing bankruptcy, you’ve probably already realized that your credit score is going to take some damage. You now want to know the hit your credit score will take, how long it will take to recover from bankruptcy, and how to find someone to help you through the process. How far your credit will plunge is entirely dependent on where your credit score is at when you file. After bankruptcy, most credit scores end up in the 520-540 range regardless of where your credit began, so your score will fall much farther if you start with a score of 720 than it would if you’re starting at 600. 

Not All Bankruptcies Are Created Equal

When it’s time to file for bankruptcy, you need to decide if you will file for Chapter 7 or Chapter 13 bankruptcy. Chapter 7 bankruptcy, sometimes referred to as a “straight bankruptcy,” offers a clean slate and a fresh start. But it comes at a high cost—your assets are liquidated and used to pay off as much of your debt as possible, and it stays on your credit report for ten years. If you have a large number of personal assets, this may not be your best option. 

According to a financial advisor specializing in bankruptcy in Utah, Chapter 13 bankruptcy is for those who have property they wish to keep. It reorganizes your debt and helps you create a plan to pay off your debt over a period of three to five years. With Chapter 13 bankruptcy, your assets and property will be left alone, for the most part, making this option more popular with homeowners than Chapter 7. At the end of a period of time determined by the terms of the Chapter 13 bankruptcy, the remaining debts are forgiven. 

Seeking Help from a Professional

Filing for bankruptcy isn’t the sort of thing you should try to do alone, and it may not be the right decision at all for you. The most important first step you can take is to schedule a financial consultation with a good bankruptcy lawyer, whose job it is to educate you and help you make the best decisions possible regarding your financial future. A bankruptcy lawyer can assist you in understanding the consequences of bankruptcy, assessing your alternatives and reaching an informed conclusion as to how to manage your financial situation from there on out. 

Your financial situation now could very well influence the rest of your life, so it’s of the utmost importance to gain as much education as possible on how bankruptcy will change that situation before moving forward. Our government has laws in place to protect those who file for bankruptcy, but trying to navigate them on your own can be nearly impossible. An experienced bankruptcy lawyer can help you make sense of the legal and financial jargon, getting you the best deal possible when it comes to the terms of your bankruptcy.

A bankruptcy lawyer may also be able to coach you through preserving some of your credit during the course of your filing and subsequent bankruptcy period. These professionals often have experience with money management techniques and debt relief strategies—use this experience to your benefit by inquiring about strategies you can use to quickly rebuild your credit after declaring bankruptcy.

Filing for bankruptcy can be a scary, but necessary, decision you have to make to ensure a better financial future for yourself. Your damaged credit will not last forever, and in time you will be able to rebuild your score. You are taking a fresh step to a brighter financial future.

Burdened by Bankruptcy? 5 Quick Tips for Emerging from Debt

If you declared bankruptcy in the past couple of months or years and are still struggling to get back to normal, you can be proactive to improve your life. The whole point of enduring a bankruptcy is to get your life back on track. Let's take a look at four tips to help you rebound.

Chapter 7 vs. Chapter 13 Bankruptcy

Although filing for either form of bankruptcy means it will show on your credit record for the next 10 years, there are significant differences between the two. With a Chapter 7 bankruptcy you likely had barely any disposable income, so you will be forced to liquidate your non-exempt assets in order to appease your creditors. Though this type of liquidation likely won’t cover the full amount owed, the remaining debt will be discharged (in nearly all cases).

If you are eligible for a Chapter 13 bankruptcy, also known as a reorganization bankruptcy, you meet minimum income requirements to avoid a complete asset liquidation. Instead, you’ll be able to keep your home and other assets as long as you adhere to a court-approved repayment plan. You will still be expected to pay your regularly scheduled mortgage and car loan payments in order to keep those assets.

If you qualify for it, Chapter 13 is much preferable to Chapter 7 bankruptcy, but in both cases you will have to rearrange your life in order to meet your obligations.

Create a Detailed Budget

Once you've declared bankruptcy, you'll have to develop a plan to handle your finances. This means spending mainly on necessities, with only a few luxuries from time to time. Follow the advice of Greg McBride: “Track your expenses for three months to get an idea of how much you're spending and where that money is going. Then create a realistic budget that fits within your monthly income.”

Apply for a Secured Credit Card

In order to rebuild your trustworthiness with credit, you'll have to start out with baby steps. The first step is obtaining a secured credit card. A secured credit card lets you improve your credit score little by little as you spend what you've deposited on the card. Reach out to bankruptcy trustees like those with Keith G. Collins Ltd in Winnipeg to help you through the bankruptcy and credit counseling processes. Once you've brought your credit back up to a respectable level, you'll soon qualify for traditional credit cards and be able to pass employer and landlord credit checks without a problem.

Bring Cash Everywhere

While you'll be able to qualify for a secured credit card after bankruptcy, you should always carry cash wherever you go. You won't qualify for any lines of credit with significant spending caps, so you'll have to spend within reason for a series of years until you can prove that you are once again credit worthy.

Establish a Bill Paying Schedule

One of the best ways to rebuild your credit and avoid extra costs is to pay all of your bills on time and in full. If you run out of cash and are only able to pay part of your bills or make late payments, your credit will continue to suffer. Don't let that happen. Create a calendar that is specifically devoted to bill due dates. Rebuild your credit little by little and eventually you'll be able to qualify for loans and lines of credit once again.

If you've declared bankruptcy, don't wallow with hesitancy and indecision after the fact. You have a golden opportunity to get your life back on track. Follow the advice above and you'll be well on your way to a return to normalcy.

Financial Future: How does filing bankruptcy affect future finances?

Depending on your situation, filing bankruptcy can either have a negative or a positive effect on future finances. Filing bankruptcy will no doubt show up on your credit report. This will cause many lenders to not lend money for a home, car, or to get a personal loan. Many creditors will ask if you have ever filed bankruptcy in the past. The answer to this question could mean the difference between getting a loan in the future or not. Of course, not all lenders will turn you down if you’ve had a bankruptcy in the past. It will depend on other things like how much money you put down and what the need is.

Negative

Business owners may be negatively affected by a bankruptcy because it can cause lenders not to give you a loan for business needs. This means if you are trying to start a business or restart one or get money for a business need, it may be difficult to get a loan from a lender with a bankruptcy on your credit report. However if you fail to file for bankruptcy, your future financial situation could be much worse.

Positive

Bankruptcy allows you to get your financial house in order if you are surrounded by debt and have no way to pay your debts. Instead of staying in the same situation and having your debts continue to mount. Bankruptcy will help you straighten your finances out and provide a new start. Bankruptcies don’t last forever. They don’t show up on your credit report forever. They drop off just like any other negative mark on your credit report. A chapter 7 bankruptcy will last for seven years on your credit report and a chapter 13 will last for 13 years on your credit report. Which one you choose depends on your individual situation.

Things to Consider

Many people think it’s the worse option available and try to do everything to avoid it. However, bankruptcy can actually be the best thing to do. It can be a lifesaver. And it can help turn your dire financial situation around. Bankruptcy acts as a shield between you and your debts.

For many people, it allows them a chance to start over again with their finances and gets things organized. You credit score will definitely be affected by a bankruptcy. It will lower it but it may not lower it as much as having a pile of unpaid or bad debt on your credit.

The Truth about Bankruptcy

Bankruptcy can be a bad thing to many people. Most people feel as if they have failed if they file bankruptcy. But bankruptcy does not mean you are a failure. Things happen unexpectedly that we are not able to control, such as job loss, income decreasing, health issues, and other personal issues that interrupt our normal lives and can cause serious consequences.

Good Bankruptcy Attorneys can help greatly in the process of filing for bankruptcy. Experienced attorneys can recommend a credit counseling or debt consolidation that’s better than filing bankruptcy or help you file a claim.

About the AuthorAshley Parker has written hundreds of articles on a variety of topics for more than seven years. Topics that she writes on include alternative energy, healthy living, home design, career advancement, travel, SEO marketing and website content.