How Bankruptcy Affects Your Credit Score
When taking each type of bankruptcy into account, there were about 26,000 bankruptcy filings in 2015 in New Jersey. Filing for bankruptcy is a decision that requires a lot of thought in order to weigh the positives against the negatives. When you’re trying to make a decision on whether or not to file for personal bankruptcy, you should consider how it will affect your credit score. How bankruptcy affects your credit score can be answered by contacting a bankruptcy attorney.
What Are the Types of Personal Bankruptcy?
There are two possible types of bankruptcy that you can file for as an individual: Chapter 7 and Chapter 13. Chapter 7 bankruptcy provides you with the ability to have all of your debts discharged. Before these debts will be discharged, however, you will be required to give up certain nonexempt assets to cover at least some of the debts that you owe. These assets primarily include any money that you have in your savings and checking accounts. Individuals will only qualify for the ability to file for Chapter 7 bankruptcy if they can prove that their income is lower than the median income level for their family size in New Jersey. If you file for Chapter 7 bankruptcy, you will also be required to undergo credit counseling for a period of time.
Chapter 13 bankruptcy differs substantially in that you will be required to make a repayment plan for all of the debt you owe. When an individual is considering filing for Chapter 13 bankruptcy, he or she will create a three-year or a five-year plan that outlines when and how the debts will be repaid. A judge will have to approve this plan before the bankruptcy can go forward. It’s still possible that a small amount of your debts will be discharged when filing for this type of bankruptcy. Chapter 13 bankruptcies are usually filed by people who have secured forms of debt such as a car loan that they would like to pay for the time being.
Bankruptcy Causes a Substantial Drop in Credit Score
While filing for bankruptcy may be the best option open to you, the main problem caused by doing so is that your credit score will drop substantially in the years following the bankruptcy. The exact effects of bankruptcy on a credit score depend on what your current score is. The drop from higher scores will be more than the drop from lower ones. In general, you can expect a score of 700 to drop upward of 200 points directly following the bankruptcy filing.
Bankruptcy Has Adverse Effect on Credit Reports
Along with your overall credit score, a bankruptcy will have an adverse effect on your credit report. If you have decided to file for Chapter 7 bankruptcy, it will show up on your primary credit report for a period of 10 years. A standard Chapter 13 bankruptcy will show up on this report for around seven years. Any tax liens or judgments that were discharged with the bankruptcy will also show up for seven years. If you start practicing good spending habits and pay balances on time, the adverse effects of this bankruptcy should start to lessen.
Credit Can Be Rebuilt After Bankruptcy
If you’re considering filing for bankruptcy because of a substantial amount of debt, it’s likely that your credit score isn’t all that great to begin with. Even though your credit score will invariably drop after filing for a bankruptcy, your credit can be rebuilt by paying strict attention to your finances in the future. From only buying what you need to making sure you always have a substantial amount of savings, a bankruptcy allows you to start over. All the debts that were shown on your credit report before the bankruptcy should show up as discharged after you’ve made the filing. The clearing of these debts on your credit report will allow you to see small improvements to your score in the months and years following the bankruptcy filing.
Once you have looked at all of your options and you believe that filing for bankruptcy is the right choice, call our bankruptcy attorneys in Marlton at (856) 596-2828 to look at all of the legal options available to you.