Bankruptcy affects your credit score. But what are the short and long term effects?
When considering filing Chapter 13 Bankruptcy, one of the most common questions asked is “how will filing Chapter 13 Bankruptcy affect my credit score?” In short, the answer is that filing Chapter 13 Bankruptcy will damage your credit score. However, even though filing Chapter 13 Bankruptcy will damage your credit score, it doesn’t have to permanently affect your financial well being. To truly answer this question, let’s break it down a bit more.
DISCLAIMER: The following blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.
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What is the purpose of a credit score?
Credit scores are intended to show the likelihood of you paying your bills on time. Creditors use your credit score and credit report as some of their factors when determining whether or not to lend to you. Because the nature of Chapter 13 Bankruptcy means that you have been unable to repay all your debt in the past, it sends a negative message to creditors.
There are no two ways about it; filing Chapter 13 Bankruptcy is not good for your credit score. But, it is important to know that the negative impact of Chapter 13 Bankruptcy on your credit score is not permanent, and doesn’t have to keep you from improving your financial situation.
How long is Chapter 13 Bankruptcy on my credit report?
The good news is that Chapter 13 Bankruptcy only stays on your credit report for 7 years. It is important to note that this does not mean your credit score will be damaged for 7 years. Usually, about 2 years after taking the initial hit from filing Chapter 13 Bankruptcy, your credit score will significantly increase, so long as you have financially responsible practices in place.
Even though the Chapter 13 Bankruptcy will remain on your credit report for 7 years, you will still be able to get credit. 7 years after the day you file Chapter 13 Bankruptcy, you will be able to contact the credit bureau and request your bankruptcy to be removed from your report.
What effect does Chapter 13 Bankruptcy have on my credit score?
There is no set number of points that your credit score will drop by, because it depends on multiple factors like your current score and past negative items. Generally, the higher your current score, the higher the hit will be.
As you rebuild your credit score, you will still be able to receive credit. However, the effect of having a low credit score is that you will receive credit at a higher interest rate.
How do I rebuild my credit score after Chapter 13 Bankruptcy?
The process of rebuilding your credit score after Chapter 13 Bankruptcy is essential. Practicing financially responsible habits like paying your bills on time is of utmost importance. There are also other practices that can help boost your credit score like using a secured credit card and keeping a low credit card balance. Read more about rebuilding after Chapter 13 Bankruptcy here.
David S. Clark, Your Auburn & Opelika Personal Bankruptcy Attorney
Even though it can feel stressful and discouraging, filing Chapter 13 Bankruptcy is not the end for your credit score. Rebuilding your credit score is possible when you practice good financial habits. David S. Clark is an experienced bankruptcy attorney who understands the complications of life after bankruptcy. If you need help navigating Chapter 7 or 13 bankruptcy, contact David S. Clark today!
DISCLAIMER: The above blog post is just advice, and you will be better served to call David S. Clark with your bankruptcy questions. This blog contains helpful tips and advice, but is not professional legal advice, and shouldn’t treated as such.