It negatively affects the credit scores, and that’s bad news. However, when I say it negatively affects the credit score, what I mean is that when you file bankruptcy, it’ll be reported to the credit reporting agencies and then that impacts the score. However, because of the nature of people that are filing bankruptcy, a lot of my clients have been facing debt struggles for a long time and they have a lot of other negative reports on their credit as well.
Sometimes when you file bankruptcy you have a lot of negative items on your credit report. When those items get cleared off even though the bankruptcy itself negatively affects your score. However, your credit report in a couple of months down the line can actually be better and your score can be better because of the bankruptcy. You’ve got the bankruptcy on that but you have removed all of the other bad things. It negatively affects the credit score but with the caveat of that, sometimes it can actually help.
How Long Does The Bankruptcy Actually Stay On A Credit Report?
It stays on there for 10 years for a Chapter 7 and it can depend on what kind of bankruptcy you are filing but the worst case scenario is 10 years. How that affects the score is a little bit different for each credit agency and they have a proprietary system for picking up their scores and stuff like that but the bottom line is it stays on there for 10 years.
Is Filing for a Chapter 13 Better for a Credit Score than a Chapter 7?
The Chapter 13 stays on the credit report for a shorter period of time. As for whether it has a lesser effect on the score itself, I don’t believe so. It’s the same effect, whether it’s a Chapter 7 or a Chapter 13, but I believe it does stay on there for a shorter period of time.
Can a Creditor Discover the Type of Bankruptcy that Someone Has Filed?
I don’t believe that it does to the creditors. There is a stigma against bankruptcy in general and against Chapter 7 bankruptcy specifically. Part of the reason for that at least is that the creditors don’t want you to file a Chapter 7 bankruptcy because it’s going to put them in a worse position. They prefer that you file a Chapter 13 bankruptcy, especially unsecured creditors, because that gives them a better chance to get some payment back. Because of that, there is misleading information floating around that judges, trustees, and creditors are going to like it more if you file a Chapter 13.
If a person that’s considering you for a loan is looking really closely at your history and they see that you filed the Chapter 13 instead of a Chapter 7, it’s possible that it might paint you in a little bit better light, but in practically, I don’t think it makes any difference at all and I don’t think it impacts the scores differently other than the amount of time that it stays on your credit report.
I don’t think that there is anything really concrete that’s going to make a difference between you filing Chapter 7 or a Chapter 13. I also don’t believe that it shows up on the credit report itself. It’ll show that you file the bankruptcy, if they look and they can check, they can see that it was a Chapter 13 or it was a Chapter 7 but it doesn’t really say that on the report.
How Soon After a Bankruptcy Can Someone Get Credit?
This is one of those things that surprises people. I actually have clients that get loans before their bankruptcy is even final. After they file the petition, what will happen is they’ll start getting a lot of solicitations in the mail from credit card companies and car loan companies or financers. So, it’s actually a lot easier than most people realize to get credit after you file a bankruptcy and to start rebuilding your credit.
Now, the catch of course is that they are probably not going to be the best interest rates but it’s available; if you use it responsibly, it can help you rebuild your credit faster. It’s something that you will be able to get some credit, it’s not going to leave you in a place where you can’t do that at all. That would be scary and inconvenient for a lot of people, so it’s one of the things that is good to know. You are not in a black hole of not being able to get any credit at all although you probably aren’t going to get the best terms in terms of interest rate and stuff like that.
Before filing bankruptcy, you couldn’t have done those things. Right before you file bankruptcy, it’s different for everybody, but lots of my clients would have no chance of getting any credit at all before they filed. The bankruptcy enabled them to get credit a couple of weeks later.
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