How Bankruptcy Affects Your Credit Score
Most people who consider filing for bankruptcy worry about the effect that it will have on their credit score. While it’s true that a bankruptcy can remain on a filer’s credit report for up to ten years and lower his or her score significantly, the decision to forgo bankruptcy in favor of allowing one’s debts to go to collections can have an equally negative credit impact. Therefore, while one should not base the decision of whether to file for bankruptcy on credit impact alone, it is definitely an issue worthy of close consideration.
• Impact on Credit Score
The impact that bankruptcy has on one’s credit score depends on whether Chapter 7 or Chapter 13 bankruptcy is filed. Typically, a filer of Chapter 7 or Chapter 13 bankruptcy can expect a credit score decrease of approximately 160 to 220 points—a reduction that can have a major impact on one’s credit. And since most financial institutions make lending decisions based on an applicant’s credit score, this decrease can undoubtedly make it difficult to qualify for an auto or home loan.
However, as the bankruptcy-related items on your credit report get older, their effect on your credit score lessens. And as mentioned above, it is for this reason that filing for bankruptcy may sometimes be preferable to allowing debts to be sent to collections. Also, in addition to the passage of time, there are numerous other measures that bankruptcy filers can take to enhance their credit scores. For example, making consistent post-petition payments on new credit accounts and reaffirmed debt can help you raise your credit score and reestablish your credit quickly.
• Credit Report Issues
A Chapter 7 bankruptcy can remain on a debtor’s credit report for up to ten years. In addition, because most debts associated with a Chapter 7 bankruptcy are discharged within a few months of the conclusion of the bankruptcy case, they are ordinarily removed from the debtor’s credit report several years prior to the removal of the bankruptcy itself. In most cases, discharged debts are removed from a debtor’s credit report after 7 years.
A Chapter 13 bankruptcy can remain on a debtor’s credit report for up to seven years. As opposed to debts discharged under Chapter 7, discharged debts under Chapter 13 remain on a debtor’s credit report for up to seven years after they are discharged. As many debts typically remain active in a Chapter 13 bankruptcy until a debtor’s creditors have been repaid in accordance with the terms of a repayment plan, discharged Chapter 13 debts can remain on one’s credit report longer than the actual bankruptcy.
•Legal Representation in New York
If you are considering filing for Chapter 7 or Chapter 13 bankruptcy in New York, please contact an attorney to discuss your situation. An experienced New York Chapter 7 or Chapter 13 bankruptcy attorney will keep you apprised of your rights while ensuring that you understand all of your debt relief options. Please contact us for a free consultation.