Bankruptcy is a legal process that relieves individuals of their debts—partially or wholly, depending on the circumstances. While it’s a smart decision to promptly file for bankruptcy when needed, it is vital to understand the implications of doing so on your credit score.
In this article, we’ve discussed the process of bankruptcy and how it affects your credit score. Towards the end, we’ve also highlighted some fast credit repair options to help you attain a good credit score and history.
Types of Bankruptcy
The type of bankruptcy a person files for determines how long it will be listed on their credit history. While chapter 7 bankruptcies stay on your history for a decade, chapter 13 bankruptcies are removed from your history after seven years of completing the proceedings.
Chapter 7 bankruptcies are the ones most people think of when they talk about bankruptcy. Once you have filed for bankruptcy, a federal court trustee supervises your assets’ sale to liquidate money to pay your creditors. Once all such assets have been sold for repayment, your leftover credit is removed.
Chapter 13 bankruptcies are a better idea if you aren’t willing to lose your assets. Under this type, the bankruptcy court and attorney draw up a 3–5-year repayment plan. The amount you will have to repay is negotiated at this point, and it can be a partial or full repayment plan. Once the repayment period is completed, the remaining debt, if any, is discharged.
Impact on Credit Score
Filing for bankruptcy lowers your credit score and also diminishes your chances of securing any credit in the future. Even after your bankruptcy is discharged, many creditors may still deny your requests because of the bankruptcy filing. Whether it’s applying for a loan or mortgage, having bankruptcy charges on your credit history will make it harder to secure a credit line on favorable terms.
Credit Repair Options
While filing for bankruptcy can help relieve you of crushing debt, there are other, less-damaging options that you should consider.
Seek the help of a credit repair consultant who can work with your creditors to formulate a debt repayment plan. It will still affect your credit score negatively, but much less so than bankruptcy filings.
You can also consider taking out a debt consolidation loan, which will aggregate multiple high-interest debts into one low-interest loan. It might lower the amount you have to pay, making it more feasible to repay the debt.
You can also approach credit repair services like Oak Credit Repair that provide credit counseling, repair, and advisory services. They can help you address your credit needs through personalized repair and management options.