If you are overwhelmed with debt, filing for bankruptcy may bring some needed relief. Bankruptcy is intended to discharge debt and give people a fresh start. In many cases, bankruptcy will help improve a borrower’s credit score. By discharging bad debts, cleaning up your credit report, and getting a fresh start, you may see a significant increase in your credit score. For more information on how bankruptcy affects credit scores, contact a Tampa bankruptcy lawyer.
There are many different types of bankruptcy filings, each with its own set of advantages and disadvantages. If you are considering bankruptcy you should first consult with a bankruptcy attorney in your area.
How Long Does Bankruptcy Stay on My Credit Report?
The bankruptcy filing may last on your credit report for a few years. If you completed a Chapter 13 bankruptcy, the filing may remain on your credit report for seven years. On the other hand, Chapter 7 bankruptcy will stay on your credit report for up to 10 years.
If bankruptcy is on your credit, it does not mean you will be prevented from acquiring new debt. For instance, the waiting period for a mortgage may be a lot sooner. The FHA and Veteran’s Association allows borrowers to qualify for a mortgage in just two years after the discharge. As with most legal issues, the outcome will depend on the specific circumstances of each case. Therefore, you should consult with a bankruptcy attorney for information about your specific case.
How Will Bankruptcy Effect My Credit Score?
It is difficult to say with certainty how bankruptcy affects credit scores because credit scores are based on a multitude of factors. One of the factors that determine the credit score is the amount of debt a person has. Bankruptcy can assist with this factor by discharging debt a borrower may otherwise be obligated to pay. Another factor is open credit accounts with late payments, these accounts can significantly reduce your credit score. Fortunately, bankruptcy can assist with this aspect as well. If the debt is discharged in bankruptcy, the account should no longer be reported as an open delinquent account.
Getting New Loans After Bankruptcy
You should be able to apply for credit cards immediately after you receive your discharge in bankruptcy. Some lenders will have no waiting period at all, you may be eligible for a loan the very next day. A great place to start rebuilding your credit is with a secured credit card. This is a credit card where you make a deposit into a savings account and then you receive a line of credit for that amount. For example, if you make a deposit of $800 into the savings account and you have a secured credit card that has a $40 annual fee, your line of credit will be $760.
Retail credit cards, such as department store cards, are also a great way to start rebuilding your credit. Often, it is much easier to obtain a credit card from a retail store than it is from a bank. Retail stores like gas stations and department stores are primarily in business to sell their products, not issue credit. With a credit card, they can sell you more of their products. Therefore, many of their credit cards will have fewer restrictions than other types of credit cards.
Impact of Chapter 7 & Chapter 13 Bankruptcy on Credit Scores
Chapter 13 is considered a restructuring bankruptcy because the borrower continues to make payments to their creditors according to a court approved payment plan. Unlike Chapter 13 bankruptcy, Chapter 7 does not involve a payment plan. Instead, the bankruptcy trustee will liquidate a debtor’s assets and use the proceeds of the sale to pay creditors. Fortunately, not all of a debtor’s assets will be subjected to liquidation by the bankruptcy trustee. For example, homes, retirement accounts, and cars may be exempt from liquidation.
Many creditors will view Chapter 7 less favorably than Chapter 13. It is not uncommon for banks to have longer wait periods to receive a loan after Chapter 7 than Chapter 13 bankruptcy.
Review Your Credit Report
It is also important that you review your credit report on a semi-annual basis. The Fair Credit Reporting Act allows every person to receive one free credit report every 12 months at www.annualcreditreport.com. Be careful of using another website, as it most likely will require a fee or come with hidden conditions.
When reviewing your credit report, there are two types of errors that you could come across. First, information was added to your report that does not belong to you. Secondly, an agency sent the report of a different person, even though the information is accurate. If you see a bankruptcy on your credit report that you did not file, you should file a dispute. You must do this by initiating a dispute with the consumer reporting agency and directly with the creditor.
Bankruptcy Law Firm
At Florida Law Advisers, P.A., we understand that filing for bankruptcy can be a very confusing and intimidating process. That is why we work so hard to make the process as easy as possible for our clients. With Florida Law Advisers, P.A., you get an experienced bankruptcy attorney in Tampa by your side throughout the case. We will help ensure your rights are protected and that you receive the utmost relief bankruptcy can offer. To schedule, a free consultation with a bankruptcy lawyer in Tampa call us at (800) 990-7763.
Frequently Asked Questions
The bankruptcy filing may last on your credit report for a few years. If you completed a Chapter 13 bankruptcy, the filing may remain on your credit report for seven years. On the other hand, Chapter 7 bankruptcy will stay on your credit report for up to 10 years.
Bankruptcy is designed to give borrowers a fresh start and provides the opportunity to discharge bills, collection accounts, and judgments. When the debts are discharged and removed from your report, the credit score should increase.
The Fair Credit Reporting Act allows every person to receive one free credit report every 12 months at annualcreditreport.com. . Be careful of using another website, as it most likely will require a fee or come with hidden conditions.
Many creditors will view Chapter 7 less favorably than a Chapter 13. It is not uncommon for banks to have longer wait periods to receive a loan after Chapter 7 than Chapter 13 bankruptcy.
New credit cards with a balance of only $300 can help improve your credit score after bankruptcy. While some banks may be skeptical about extending credit so soon after bankruptcy, some retailers may be more willing to do so. Retailers (such as gas stations, for example) will often have less restrictions for new applicants in comparison to the big banks.
Yes, filing bankruptcy does not prevent you from obtaining a new home mortgage. However, the government mortgage programs such as VA, FHA, and Fannie Mae have a 24-month waiting period for eligibility after bankruptcy. Other mortgage programs may have a shorter or longer waiting period, depending on their specific guidelines.
Yes, many car loan lenders will have no restrictions or waiting periods after bankruptcy. There are many car loan lenders who will provide financing for a new car the same day your bankruptcy is completed.
