If you’re considering bankruptcy, you’re probably wondering how it will affect your credit. Here’s what you need to know.
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bankruptcy will stay on your credit report for 7-10 years, making it difficult to get approved for new credit during that time. But that doesn’t mean you’ll never be able to get credit again. Here’s what you need to know about how long bankruptcy affects your credit and what you can do to improve your creditworthiness after filing.
The Different Types of Bankruptcy
There are several different types of bankruptcy, each with its own rules and regulations. The most common types of bankruptcy are Chapter 7 and Chapter 13.
Chapter 7 bankruptcy is also known as liquidation bankruptcy. In a Chapter 7 bankruptcy, your assets are sold off in order to pay your creditors. After your assets are sold, any remaining debt is discharged.
Chapter 13 bankruptcy is also known as reorganization bankruptcy. In a Chapter 13 bankruptcy, you create a repayment plan to repay some or all of your debts over a three- to five-year period. After you have made all of the required payments, any remaining debt is discharged.
Bankruptcy can also be filed under Chapter 11 (businesses) or Chapter 12 (farmers and fishermen). These types of bankruptcies are less common and have different rules and regulations.
How Long Bankruptcy Stays on Your Credit Report
Bankruptcy stays on your credit report for a long time, usually 10 years. But that doesn’t mean you’ll never be able to get credit again. In fact, you may be able to get credit within a few years of filing bankruptcy, if you manage your finances responsibly.
Other factors, such as the type of bankruptcy you file and whether you have any other negative marks on your credit report, also affect how long bankruptcy stays on your report and how long it takes for your credit score to recover.
The Impact of Bankruptcy on Your Credit Score
While the exact impact of bankruptcy on your credit score will vary depending on your individual situation, in general, you can expect your score to take a significant hit if you file for bankruptcy.
The most important factor in determining the impact of bankruptcy on your credit score is the type of bankruptcy you file. A Chapter 7 bankruptcy, which entails the liquidation of your assets to pay off creditors, will usually have a more negative effect on your score than a Chapter 13 bankruptcy, which involves a repayment plan.
That being said, any type of bankruptcy is likely to cause at least some damage to your credit score. In addition, the timing of your bankruptcy filing can also affect your score. For instance, if you file for bankruptcy immediately after falling behind on your payments, this will be viewed negatively by potential lenders and will likely result in a lower credit score.
If you’re considering filing for bankruptcy, it’s important to understand how this decision will affect your credit score and to consult with a financial advisor or credit counseling service to discuss all of your options.
Steps to Rebuild Your Credit After Bankruptcy
Although bankruptcy can remain on your credit report for up to 10 years, it does not mean that you will be unable to get credit for that entire time. In fact, there are several things you can do to begin rebuilding your credit as soon as your bankruptcy is discharged.
The first thing you should do is order a copy of your credit report from all three major credit reporting agencies – Experian, Equifax and TransUnion. This will give you an idea of where you stand and what needs to be done in order to improve your credit score.
Next, you should start paying all of your bills on time, every time. Even if you can only afford the minimum payment, this will show potential creditors that you are serious about repairing your credit. Additionally, you should try to keep balances low on any revolving accounts such as credit cards.
Finally, one of the best ways to rebuild your credit after bankruptcy is to obtain a secured credit card. With a secured card, you deposit money into an account with the creditor which then becomes your line of credit. As long as you make payments on time and keep your account in good standing, this can be an excellent way to improve your credit score over time.