One of the main reasons why people hesitate to file
Chapter 7 and
Chapter 13 bankruptcy is because they are worried about how
bankruptcy would affect their
credit score. Although bankruptcy is a negative mark on your credit, how much
bankruptcy will affect your FICO score depends largely, on how bad your
credit was before filing.
Are you already far behind on your
credit card, auto, or mortgage payments? Have any of your accounts been sent to collections,
or have they been charged off? If yes, then continuing to fall farther
behind will only hurt your credit even more.
Filing for bankruptcy may actually allow you recover financially and credit-wise
faster than if you allowed your debt to continue snowballing. There are different
reasons for this, for example, when you file for Chapter 7, you’re
able to “erase” many types of debts, such as credit card debt.
When debtors file a Chapter 13, they reorganize their debts into a monthly
payment plan that they can afford. With a Chapter 13, the debtor pays
off all or a portion of their debts over a 3 to 5 year time period based
on their available net income.
What we are saying is, when you file for bankruptcy, you get immediate
financial relief. You reduce your debt-load and your debt-to-income ratio,
and you get the breathing room you need to start paying your debts on
time. You are given the opportunity to start rebuilding your credit right
away, instead of waiting indefinitely.
What if I don’t file for bankruptcy?
If you really need to file for bankruptcy and you choose not to do so,
your interest, penalties and late fees will continue to add up with no
end in sight. As you continue to limp along, you could be subject to collections,
charge-offs, eviction, repossession, and
foreclosure. As your debt increases, you’ll be further away from rebuilding your credit.
Bankruptcy and Your Credit
A Chapter 7 will remain on a debtor’s credit for up to 10 years,
whereas a Chapter 13 remains on a debtor’s credit for 7 years. Meanwhile,
discharged debts drop off credit reports after 7 years. Essentially, as
discharged debts get older, the less of an impact they have on credit score.
When you file for bankruptcy, it’s important that you begin re-establishing
credit immediately, otherwise, you’re creating a “hole”
on your credit report if you go years without rebuilding credit after
the bankruptcy is discharged.
When a debtor goes to work re-establishing their credit immediately following
a discharge, they can achieve a good credit score (somewhere in the 700s)
within two to three years of filing bankruptcy. So, often filing for bankruptcy
“just makes the most financial sense.”
Are you considering filing bankruptcy in Harrisburg or York?
Contact our office for a free bankruptcy consultation!