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How Does Bankruptcy Affect Your Credit Score?

How Does Bankruptcy Affect Your Credit Score?

Filing for bankruptcy at any time in your life can be a stressful, emotionally-taxing experience. But it’s never more difficult to take the bankruptcy route than when you also have long-term goals of buying a home or making another major purchase. You likely realize that bankruptcy can affect your credit score, but how much, and for how long? 

Bankruptcy and Your Credit Score

First off, if you’ve definitely decided on filing for bankruptcy, you need to know which type you’ll be aiming for: 

Chapter 7 bankruptcy is commonly referred to as “liquidation” and that sounds just as it is – any assets that aren’t legally exempt could be sold and the proceeds used to pay debtors. Debts beyond that are discharged and there is no repayment plan.

Chapter 11 bankruptcy is most often used by large businesses to reorganize debt, allowing the company to remain open and continue to operate during repayment. If an individual doesn’t fit the criteria for other forms of bankruptcy, chapter 11 might be an option.

Chapter 13 bankruptcy is often referred to as “reorganization” and is used by individuals who don’t fit the criteria for chapter 7 bankruptcy. They have dependable income and prefer to keep assets while stretching a consolidated debt repayment over a 3-5 year time period.

Now that you know which type of bankruptcy fits your situation, you’re probably wondering just how your credit score will be affected. Well we can confidently say that any form of bankruptcy is hard on credit scores.

How does chapter 7 bankruptcy affect my credit score?

The effect will be negative, but the extent will vary, depending on your personal financial history and situation. As time passes and you are able to reestablish good financial habits your score should improve, but the effect of bankruptcy can hang on for up to 10 years’ time after the date of filing.

How does chapter 11 bankruptcy affect my credit score?

You can expect your score to drop, but the amount will depend on your score at the time of filing, your previous financial condition, and whether accounts had become delinquent. The public record associated with your bankruptcy could have an impact on your credit score for up to 10 years from the time of filing.

How does chapter 13 bankruptcy affect my credit score?

While any bankruptcy filing will have a negative impact on your credit score, creditors may prefer to see at least the partial repayment that’s wrapped into a chapter 13 filing. So it’s possible that your credit may not take as much of a hit, but again, everything depends on your unique circumstances. The effect of a chapter 13 bankruptcy on your credit score can linger for up to 7 years after the filing date, so even after your 3-5 year repayment plan is complete.

If up until the time of bankruptcy you’ve kept regular on payments and accounts are not in collections, then you’ve probably maintained a reasonably good credit rating. In that case, any type of bankruptcy filing can deliver a major blow, since you’re quickly moving from a good standing to the point of financial emergency.

On the other hand, if you had already been dealing with late payments or collections calls, your credit score has probably been sliding south for some time. In that case, a bankruptcy filing may increase your creditor score after your discharge.

Another key factor to keep in mind is that the number of accounts listed in your bankruptcy filing can affect the ultimate impact to your credit score. And on a positive note, as soon as you have filed and debts are either discharged or you begin a repayment plan, keeping up-to-date with all bills moving forward can definitely have a positive impact on your credit.

One small step at a time you can work towards rebuilding whatever damage was done by the bankruptcy filing. Now the goal would be to keep moving in a good direction by doing incremental work to get a handle on managing your finances.

Rely on Your Ohio Bankruptcy Lawyers

When bankruptcy seems like the only option, you’ll want to search out sound advice from reliable advisors to make the best decisions. This will undoubtedly be a stressful time, but know that help is at the ready. Working with an experienced Akron bankruptcy attorney can ensure the best possible outcome and get you on the path to recovery.

If you need help to decide whether bankruptcy is the best option for your situation, or which type of bankruptcy filing fits your situation, don’t hesitate to reach out to the experts at Bates and Hausen, LLC – our Northeast Ohio Bankruptcy Attorneys will be happy to weigh in. Give us a call at our office or complete an online contact form to schedule a free consultation. We proudly serve Akron, Canton, Wooster, and Dover/New Philadelphia and are here to help our community.

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