Many facing overwhelming debt try to avoid filing bankruptcy for a long as possible. They don’t want bankruptcy to affect their credit, thinking they will suffer for years and years. However, sometimes, when you are facing thousands and thousands of dollars in credit card debt or medical debt, getting debt relief through bankruptcy is the best option.
Bankruptcy and credit facts
If you are concerned about how bankruptcy will affect your credit, you should know the following:
- A Chapter 7 bankruptcy will remain on your credit report for 7-10 years.
- A Chapter 13 bankruptcy will remain on your credit report for 7 years from the date you file.
- If your credit score is already fair or poor, you might not see as large of a score drop after filing bankruptcy.
- If you manage your money better during and after a bankruptcy, your credit rating can improve, even though a bankruptcy is on your credit report.
- If you file a Chapter 13 bankruptcy, it’s a reorganization of your debt. You arrange a payment plan to pay off your debt in three or more years (the court approves a longer period of time).
- As you pay your creditors in the plan, your credit rating will improve.
Rebuilding your credit
Once you finish a bankruptcy repayment plan, you can rebuild your credit in the following ways:
- Establish a budget where you can live on your income and pay all your essential bills.
- Establish a savings account to pay for emergency purchases.
- Limit your credit card purchases as much as possible and keep your balances low if you take out new debt after bankruptcy.
- Pay all your credit card bills on time. Keep balances low in relation to the credit limit. Utilizing a higher percentage of your over credit limit will lower your score.
- Avoid making several credit card or loan applications at the same time. Part of a credit score is based on how many credit applications you make. These are called “hard inquiries” that stay on your report for approximately 2 years.
- Reestablishing your credit after a bankruptcy is possible, just remember to keep your outlook on the long-term. Take small steps to move toward a better financial future after you discharge debt through bankruptcy.