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How Does Bankruptcy Affect Your Credit Score?

Bankruptcy can give you the debt relief you need in hard times, but what happens to your credit score in the process?

What Bankruptcy Does

There are two types of consumer bankruptcy: Chapter 7 and Chapter 13.

  • Chapter 7, or liquidation, allows a trustee to manage the sale and liquidation of assets to pay off your debts.
  • Chapter 13, or reorganization, gives you the power to assess your debt and draft a reorganization plan to help you pay back what you owe

Both Chapters 7 and 13 result in the discharge of most debts. Depending on our unique circumstances, one may be better for you than the other. For example, Chapter 7 is usually the optimal choice for people with no disposable income to put toward debt payments, while Chapter 13 is for those with funds but who need more time.

The debts that bankruptcy can’t discharge are required payments like child support or some federal student loans. Car loans, mortgages, and personal loans can be discharged through the bankruptcy process.

Your Credit Score

If you currently are behind on your debt, your credit score is probably already affected. The good news is very shortly after bankruptcy, many clients see a significant improvement in their credit score after the process is complete. What happens is after the bankruptcy, the creditors no longer report negatively on your credit report because a debt has been discharged. You will not have a revolving balance any longer, or late payments being reported which helps the credit score improve right after the bankruptcy process is complete.

We give you tips and tricks to help the score improve quickly which will allow you to get new credit cards, new car loan, or even buy house subject to a waiting period.

Consequences of Avoiding Bankruptcy

Debt doesn’t happen overnight, and neither does debt recovery. That said, waiting too long to file for bankruptcy can cost you more in the long run.

Bankruptcy allows you to pursue debt relief under the supervision of the court and/or a trustee. There are rules and guidelines for these cases that provide a clear path to resolution and help you get back on your feet quickly and improve your credit score.

However, if you choose to figure it out yourself, you could face a different set of problems. “Freestyling” debt relief rarely works out favorably and can make things worse very quickly. Missed payments, loan defaults, collections, and settlements stay on your accounts for years after the fact, and if you don’t take care of them quickly, recovery gets further and further out of reach.

Digging yourself out of debt also means you don’t have access to trustees or attorneys who can guide you and provide insight based on years of experience. An advocate in your corner can go a long way toward debt recovery. Take control of your credit report and credit score today. The sooner the better long term.

Start Your Debt Relief Journey

Debt takes an emotional and mental toll, but it doesn’t have to rule your life forever. The Law Office of Seni Popat, P.C. understands how important it is to get a fresh start, so we offer a variety of bankruptcy services to meet your specific needs so you can get back on your feet.

Choose a bankruptcy attorney who cares. Choose the Law Office of Seni Popat, P.C.