Filing for bankruptcy can be a very difficult time. Whether you are considering Chapter 7 or Chapter 13 bankruptcy, one question remains…How will bankruptcy affect my credit score? Having a bankruptcy on your credit report is never looked upon well, but the damage to your credit score is mostly dependent on your credit score prior to filing.
If you have racked up a large amount of debt, possibly on many accounts, and have few possessions, there is a good chance your credit is not in good standing. When you file for bankruptcy, it is likely that your credit score will take a modest drop, but not completely plummet.
If you had good credit prior to filing, your experience will be different. Your score will take a much bigger hit after filing if you have good credit.
Will bankruptcy ruin my good credit score?
Filing for bankruptcy of any kind will definitely damage a good credit score. FICO, the most popular credit scoring company in the US, said that you should expect a huge plunge in your as soon as you file for bankruptcy if you have a good credit score.
What if I have a bad credit score?
Having a low credit score before filing for bankruptcy will still affect your score. Those with a low score will see a modest dip rather than a huge drop.
Is Chapter 13 bankruptcy better for my credit than Chapter 7 bankruptcy?
According to FICO, whether you are filing for Chapter 7 or Chapter 13 bankruptcy does not make a difference toward your credit score.
Although the type of bankruptcy does not matter for your credit, it may make a difference to creditors. Chapter 13 bankruptcy requires you to submit a repayment plan to repay some or all of your debts over a period of 3-5 years. This may be viewed as more responsible than Chapter 7 bankruptcy. If creditors think that you are more responsible, they will see you as a better a better credit risk.
Can bankruptcy ever help improve a credit score?
Bankruptcy won’t provide immediate improvement to your credit score, but for many people it can be the quickest way to a better score. Here’s why.
Contrary to popular belief, in some instances bankruptcy can help improve your credit score. The improvements will not be immediate, but it can help in the long run.
If you are behind and continue to fall further behind on debt payments, or have accounts in collection, then bankruptcy can be beneficial. Bankruptcy will eliminate many different types of debt, giving you a fresh start financially. Eliminating some of your debt will help you get your finances in order. Once you have your finances in order you can start to make payments on time and reduce your debt to income ratio, helping to rebuild your credit.
If you continue without filing for bankruptcy, it will be very difficult to ever improve your credit. Continuing to make late payments, defaulting on debts, and increasing your debt to income ratio will only hurt your credit further.
It is important to note that bankruptcy is not the only way to handle your debt. Research alternatives to see what will work best for you, and always consult an attorney when in doubt.
Will I be able to get loans or credit after I file for bankruptcy?
Getting loans or credit after filing for bankruptcy will depend on what exactly you are looking for.
Many people who file for bankruptcy will be barraged with credit card offers. Credit card companies are well aware that you can’t file again for several years. This means you can’t discharge any debt you incur in that time, so they will be very eager for your business. These offers will have hidden fees, very high interest rates, and other unwanted charges, so beware.
You will most likely be able to get a car loan immediately. But the loan terms will be unfavorable and interest rates will be very high because you’ll deal with subprime lenders.
If you are looking to get a mortgage, that will depend on the mortgage lender. It is possible to qualify for an FHA-insured mortgage two years after Chapter 7 and only one year after Chapter 13. You will have to wait at least 2 years after Chapter 13 and four years after Chapter 7 for conventional loans that are sold to Fannie Mae. You might have to wait even longer if your lender does not sell its loans to Fannie Mae.
It could take even more time to qualify for a mortgage, as these are all of the minimum wait periods. Income, down payment, and your debt load can also affect your qualification.
How long will bankruptcy stay on my credit report?
Filing for either Chapter 7 or Chapter 13 bankruptcy will appear on your credit report for up to 10 years, and sometimes even longer.
Credit reporting agencies can report your bankruptcy for more than 10 years if you apply for a job with annual income greater than $75,000, or apply for a loan or life insurance policy in an amount greater than $150,000. Common practice for most reporting agencies is to delete the bankruptcy after 10 years.
Can I improve my credit score after bankruptcy?
Just because bankruptcy can remain on your credit report for up to 10 years does not mean you have to wait to rebuild your credit. Other factors credit scoring agencies look at are outstanding debt, payment history, length of history, and how much credit you’ve applied for.
You can start to improve your credit after bankruptcy by making all of your payments on time. Keep your debt load low, especially as compared to your available credit. And when you are ready, get a credit card, make small charges, and pay the bill off in full every month.
To start improving your credit after bankruptcy, make your payments on time. Try not to incur any more debt, and keep your debt load low relative to your available credit. Once you are ready, get a credit for small purchases and every month pay the bill in full.
The Law Offices of Marc A. Futterweit is well versed in working with clients through any chapter of bankruptcy that they may fall under. Regardless of what chapter you must file for, we will be able to put together a comprehensive plan to ensure that you are able to move forward toward a fresh start in your life. We will always take the time to walk you through what you can expect as the process moves forward and we will counsel you as to the best choices you can make during this time. If you are interested in learning more about the various chapters of bankruptcy and your various options, please call our office today at 973-442-0200 or visit our website at www.futterweit.com.