The main problem that discourages most people from filing for bankruptcy is the adverse effect this has on their creditworthiness. It is true that a bankruptcy for up to ten years can remain on your creditworthiness report and it seriously damages your credit score. However, if you do not file for bankruptcy and do not allow your debts to go to collections, this also has a negative effect on your creditworthiness.
Depending on the type of bankruptcy you are filing, chapter 7 versus chapter 13, your credit score decreases somewhere between 160 and 220 points. This is sufficient to turn a good creditworthiness into a reasonable or a bad one. Since most lenders decide whether or not to extend your lending based on your credit score, bankruptcy makes it much harder to qualify for a car or home loan or credit cards.
The primary remedy for this is time, but there are additional measures you can take to improve your credit report and score positively. Ultimately, if you manage your new debts properly, your score will gradually increase, and over time you will be able to lead your financial life successfully, even if the bankruptcy has not yet submitted your report.
How long a bankruptcy will remain on your credit report
Chapter 13 Bankruptcy
The bankruptcy itself and the debts associated with the bankruptcy are displayed differently on your credit report. A completed Chapter 13 bankruptcy will remain on your report for a maximum of seven years and the canceled debts will also remain on the report for seven years after the dismissal. Because many debts in a Chapter 13 bankruptcy remain active until the end of a three to five year payment plan, the debts that have been discharged may remain in the report longer than the bankruptcy itself.
Chapter 7 Bankruptcy
A completed Chapter 7 bankruptcy remains valid for a maximum of ten years on your creditworthiness report. Moreover, since all debts related to a Chapter 7 bankruptcy are settled within a few months of submission, they must also deliver the report a few years before the bankruptcy itself. In general, the debt waived decreases after seven years with a credit report.
In short, as the items in your report related to the bankruptcy age, they will have less and less effect on your credit score. By the way, this can speak about the timeliness of filing for bankruptcy, instead of letting the accounts of the collections collapse and filing them later.
Management & improvement of your credit score after bankruptcy
1. Check your credit score
It is important that everyone regularly checks their credit report, but it is of the utmost importance for people who have recently filed for bankruptcy. Keep a list of the debts included in your bankruptcy and check their status a few months after your debts have been settled. If you have submitted Chapter 7, these debts must contain a balance of $ 0 and no longer be listed as a delinquent. If something is not reported correctly, ask the issuer of the credit report to make the change and contact the original lender.
2. Recover credit as soon as possible
Depending on whether you complete chapter 7 or chapter 13, the bankruptcy will expire within ten or seven years of your report. However, if none of your accounts are older than ten, a bankruptcy may place you in the same place as an 18-year-old with no credit history. Otherwise this could create a virtual “gap” in your report, or a long period in which it looks like you have not received any credit at all.
That is why it is important to apply for credit shortly after the bankruptcy has expired to restore a credit history and rebuild your score. Despite an impure credit report, there are a few ways to start this process:
- Secured credit cards . A secured credit card requires that you give the credit card company a lump sum that they keep as collateral. You will then receive a credit card with a limit that is equal to the collateral you have supplied. These cards often include fees, so review the disclosures and the application carefully to make sure you don’t spend more than the card is worth to you. These cards are much easier to get than other credit cards, because the lender does not take any risk to increase your creditworthiness.
- Save credit cards . Saving credit cards often have lower eligibility requirements, although they often bear high interest rates and costs. As always, it pays to read the disclosures and the application carefully.
- Car loans . Car loans are generally easier to get than other types of loans, especially if you offer a loan brother-rich down payment. If you need to buy a car and can save money for a down payment, start shopping within six months of completing your bankruptcy.
3. Do your homework on credit card offers
One thing that confuses many people who file for bankruptcy is that they get multiple credit card offers just after their bankruptcy is completed. You would think that a new bankruptcy would be a strong deterrent for lenders.
However, the banks know that you cannot resubmit for a number of years, so you are actually a better risk than before. Be sure to read the fine print of every new debt that you sign up for, as many companies deliberately prey on people who have filed for bankruptcy loan by offering new lines of credit that are filled with fees, minimal payments and extremely high interest rates.
Over time, reports of these debts will increase your credit score, provided that you use credit cards and rewards wisely by paying on the due date and in full each month. Initially, the only lenders to extend your credit are loan, small banks and credit unions. But in a few years you may be able to get approval from the national banks, which is important because big names on a credit report can influence future credit decisions such as a mortgage to your advantage.
The passage of time alone will increase your score. Plus, as long as your report is full of A + figures, you should have a decent credit score within a few years, and even a good score by the time the bankruptcy abandons your report.
4. Keep your oldest accounts active
Because many people who declare bankruptcy have previously had good credit, older items in their report can help their credit scores, even if they go bankrupt later. The “length of credit history” factor, which accounts for around 15% of your score, is generally not affected by the filing of a bankruptcy. In other words, keep these older accounts active and in tact wherever possible to maintain the length of your credit history.
5. Don’t sign up for multiple accounts
About 10% of your credit score is determined by whether you have recently signed up for new accounts. Although you must apply for new credits to begin rebuilding your score, you must minimize the accounts and spread your applications over time.
This is especially true if you are applying for a large loan such as a mortgage or car loan. Rating companies consider it a bad sign if you apply for many new credits in one go. Another reason to limit the number of credit accounts that you sign up for is so that you can manage the ones that you have effectively and responsibly.
If you have a bankruptcy on your credit report, your score will drop in the beginning, considering. This will become less important over time, especially if you begin to identify new loans and good financial habits as quickly as possible. In fact, people who are responsible for their debts and actively follow up their credit report can apply and qualify for most debts within two to four years after the bankruptcy has been completed.
In other words, they can apply for mortgages, car loans, and new credit cards in the same way as anyone with a comparable credit score, regardless of the bankruptcy. Remember that bankruptcy will eventually deliver your report, just like all your old debts. If you have a very poor credit score due to multiple missed payments, accounts in collections or reduced limits, a bankruptcy application may actually be less harmful to your credit than you stay in your current situation.