Thursday, February 13, 2014

5 Ways Bankruptcy Might Affect Your Credit - It’s Not What You Think

Bankruptcy And Your Credit Score- FAQ's

When thinking of filing for bankruptcy, you might have several questions particularly concerning your credit score. Are you wondering how it will affect your credit score, or for how long you’ll have to ‘suffer’ the effects of having bankruptcy noted on your credit history? There are some surprising answers to these questions.

How will bankruptcy affect my credit score?

After filing for Chapter 7 or Chapter 13 bankruptcy, many individuals are perturbed about the effects of bankruptcy on their credit scores. The severity of damage that bankruptcy will do is dependent upon on your credit reports prior to bankruptcy. If you had a relatively good credit report initially, bankruptcy may cause a huge hit with your credit reports.

If you have a high ratio of debt-to-asset then your credit will not be affected greatly. If you plan to file for bankruptcy with more debts and less assets, your credit score will only be moderately affected.  It is always best to consult the advice of a professional to make sure that you should file for bankruptcy. For bankruptcy statistical data in your area visit U.S. Bankruptcy Courts Site.

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Can bankruptcy increase my credit scores?

Don’t go by the popular myths of bankruptcy automatically leading to a terrible credit score.  Why?
There are many cases where people saw an increase in credit scores! In fact, many people recover in a range of 12-24 months following their release.

You can always make up for your credit scores by paying and clearing all your debts within a proper time frame. The credit companies will check your payment history, outstanding debts, and credit history while calculating the scores. After getting released from bankruptcy try to sort out as many debts as possible.

It is important that you organize your debts, make sure you don’t fall under these common misconceptions:
●    50% of individuals believe that bankruptcy excuses you from paying off credit card debt.
●    Furthermore,     38% of individuals believe that creditors will be just as likely to work with you after you have filed for bankruptcy.

Make sure that you do not fall under these false beliefs, as it could lead to a bad decision!

Resources:  Credit Card Debt Calculator

Which bankruptcy is better for my credit score?

There are two types of bankruptcies: Chapter 7 and chapter 13. It is important to know that both Chapter 7 and Chapter 13 bankruptcies have the same exact effect towards the calculation of your credit score.

There are some special cases in which creditors may favor one bankruptcy type over the other. For instance, a potential creditor might feel that an individual clearing all his debts in 7 years under a chapter 13 bankruptcy is more dependable than the one who has filed a chapter 7 bankruptcy.

How long will bankruptcy appear in my credit reports?

If you have filed for a Chapter 7 or 13 bankruptcy then it might appear in your credit reports for a period of 10 years. Again, if you opt for a loan which is greater than $150,000 or a job which has a salary of $75,000 or more, then the credit companies can extend bankruptcy more than 10 years on your credit reports.

How is your credit score, calculated when you file bankruptcy?

When you file for bankruptcy, your credit score, it is calculated by comparing your credit report with other reports of prospective individuals. There are individuals who have high, middle, and low credit scores after bankruptcy. However, increasing that credit score to 700 by managing your payments and debts is very possible with patience and persistence.

By Christopher W. Kelley