Making the decision to file for Chapter 7 or Chapter 13 bankruptcy is a huge step in debt relief. But many people are worried about the impact on their credit score if they file for bankruptcy. Although creditors do not like to see a bankruptcy on your credit report, the damage it will do to your credit score depends on how good your credit was before you file for bankruptcy in Lebanon Missouri.
If you are delinquent on many accounts and your debt-to-asset ratio is high, or your debt-to-income ratio is high, then your credit is already suffering. If you file for bankruptcy, your credit score will most likely dip, but it won’t take a huge plunge. If, on the other hand, you have excellent credit before you file for bankruptcy, then your score will decrease by a larger amount, but it is still repairable.
Will I Ruin My Good Credit Score If I File For Bankruptcy?
Whether you have a good or poor credit score, filing bankruptcy will definitely have an impact. According to FICO (the most widely-used credit scoring company in the U.S.), those with good credit should expect a larger drop in their score in the short term but will rebuild with proper credit management.
What If I Have A Bad Credit Score?
If your credit score is already low before you file for bankruptcy, then bankruptcy will cause only a modest drop in your score and will put you on the right path to credit rebuilding.
Is Chapter 13 Bankruptcy Better For My Credit Than Chapter 7 Bankruptcy?
According to FICO, both Chapter 7 bankruptcy and Chapter 13 bankruptcy will have a negative impact on your credit score in the short term.
Can Bankruptcy Ever Help Improve A Credit Score?
Filing for bankruptcy generally will not provide immediate improvement to your credit score, but for many people, it can be the quickest way to a better score.
Late payments, accounts in collections, and delinquent accounts all have a disastrous effect on a credit score.
If you’re already behind on debt payments, continue to fall further behind, or have accounts in collections, bankruptcy can help get you back on your feet sooner than other types of debt management programs.
Bankruptcy will eliminate most types of debts and provide you with a fresh financial start. When you reduce your debt load and get your finances under control, you can start making loan and credit payments on time, reduce your debt-to-income ratio, and use credit responsibly to rebuild your credit score.
Will I Be Able To Get Loans Or Credit After I File For Bankruptcy?
Establishing new credit after bankruptcy can be tricky to navigate.
Credit Cards – Many bankruptcy filers receive numerous credit card offers after the bankruptcy is discharged and closed. Credit card companies know that you can’t file another bankruptcy for several years, which means you can’t discharge any credit card debt you run up during that time. This will make them eager to earn your business. Responsible credit card use is often the first step to re-establishing your credit.
Car Loans – Obtaining a car loan after bankruptcy is also possible. Many reputable auto dealerships have departments designed to assist buyers who are in the credit rebuilding process.
Most likely you’ll be able to get a car loan right away, but you may be dealing with subprime lenders, which means a bit higher interest rates. There are auto loan services for those who have been turned down in the past and these services can be helpful if used as intended, a stepping stone to better credit.
Choosing wisely in your auto purchase and factoring in the interest and term of the loan is a smarter way to think about financing. As your credit improves, so will your interest rates and available loan terms.
Mortgages – How long it will take to qualify for a mortgage depends on the mortgage lender. Some debtors qualify for mortgage loans even before their bankruptcy is complete. It is important to work with a mortgage broker, underwriter, and title company that fully understands the bankruptcy process.
Other factors that affect your qualification include your income, your debt load, and the amount of the down payment.
How Long Will Bankruptcy Stay On My Credit Report?
If you file for either Chapter 7 or Chapter 13 bankruptcy, it can appear on your credit report for up to seven to ten years. Keep in mind just because the bankruptcy is reported doesn’t mean your credit score can’t continue to improve.
How Can I Improve My Credit Score After I File For Bankruptcy?
Even though bankruptcy remains on your credit report for up to ten years, you can start rebuilding your credit right away. Credit scoring companies look at several factors when computing your score. Positive payment history (paying your bills on time), how much outstanding debt you have, the length of your credit history, and debt to income ratio are all considered when calculating your score.
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 by using your available credit responsibly.
There are many pros and cons to consider when trying to decide whether or not you should file for bankruptcy. The impact on your credit score is just one part of the equation. The best way to make this decision is to meet with one of our experienced bankruptcy attorneys and let them explain your options to help you make an informed decision.
