subject: How Will Filing for Bankruptcy Affect My Credit? [print this page] How Will Filing for Bankruptcy Affect My Credit?
How a bankruptcy filing affects a filer's credit score at the time it is filed depends on where the score was the day before the filing. With consumer finances becoming more integrated by the day, financial difficulties are much harder to hide. If a Chapter 7 or Chapter 13 bankruptcy is being contemplated, the odds are high that the reasons for the contemplation will be reflected in a credit score. In other words, if payments are already being missed, delinquencies are common, and there are other financial stress issues, the credit score of the filer is going to be low enough that further credit "dings" will have minimal effect. With today's strict lending standards in place, once a credit score drops below 600 a debtor is going to find getting any kind of credit either impossible or too expensive for it to be worthwhile. With little to lose in terms of borrowing capabilities, it makes sense to start the rebuilding process by filing for bankruptcy. Some of the other considerations besides a bankruptcy's effect on a credit score include:
Late payments and charge-offs typically stay on a credit report for 7 years. By comparison, a Chapter 7 bankruptcy will stay on a credit report for ten years and eliminates all unsecured debts. A Chapter 13 only stays on for the same seven years as "lates and unpaids" but also shows that a debtor took action and paid off debt via a court ordered payment plan.
Lenders are becoming more willing to approve credit after bankruptcy, due in part to the increasing commonality of bankruptcies across the country. Another factor for consideration is that a borrower with a clean slate has a much better chance of making payments. Completion of a Chapter 13 payment plan can also demonstrate to lenders that a borrower can handle regular payments on debt obligations over a period of years.
If there are no plans for purchases which would require credit, a credit score loses its importance. This is one of the factors behind the rise in bankruptcy filings by senior citizens. With savings jeopardized and burdened by heavy medical bills and other debts, seniors are now filing for bankruptcy at the highest rate of any age group.
Filing either a Chapter 7 or Chapter 13 Bankruptcy is a convoluted process with much at stake. Having an experienced bankruptcy attorney navigate the process on your behalf can ensure that you'll regain your financial footing, be able to rebuild your credit, and achieve the best outcome possible.
