When you decide that filing for bankruptcy is the best option to get out of debt and improve your financial situation, the next big choice you have to make is what type of bankruptcy to apply for. Typically, individuals opt for Chapter 7 or Chapter 13 bankruptcy.
Chapter 13 requires a repayment plan to pay off some – or even most – of your debts. While this might seem less attractive than Chapter 7, where a lot of your debts are discharged, Chapter 13 can have a more beneficial effect on your credit score.
Under Chapter 7, also known as liquidation bankruptcy, your assets may be sold to pay some portion of your debts if you have assets that require liquidation prior to the entry of the case closing order. However, it can have longer-term and more negative impacts on your credit score.
How Chapter 7 Affects Your Credit Score
Your Chapter 7 bankruptcy notice itself will stay on your credit report for 10 years from the date you filed for bankruptcy. So, the fact that you filed for bankruptcy regardless of what debts are resolved or accounts are removed from your reports will remain for 10 years. All of the debts that were discharged through your bankruptcy proceedings will stay on your report but will be noted that the debt associated with the accounts was eliminated in the bankruptcy proceeding.
When your bankruptcy is final and your debts have been discharged, any affected accounts will be updated on your credit report to show that the debt was discharged. The balance will show zero. However, the accounts will stay on your report and your payment history – including delinquent payments – will be reflected on your report.
When Do Accounts Fall Off of Credit Reports?
If you have delinquent accounts, you should be prepared for them to still show up on your credit report following the conclusion of your Chapter 7 bankruptcy. They will stay on your report for seven years from the original delinquency date.
For any accounts that you made on-time payments for before your bankruptcy, those will stay on your report for seven years from the date when you applied for bankruptcy.
How To Rebuild Your Credit
As time goes by, you will be able to rebuild your credit and you will see improvements to your credit score.
Some ways you can achieve this are by:
- Making on-time payments: Make sure that you pay all of your bills on time. One of the top elements impacting your credit score is your payment history. Showing that you can make regular payments on time will help improve your score.
- Get new lines of credit: After your Chapter 7 bankruptcy proceedings, you will need to try to open new lines of credit. This will show you can qualify for credit and will allow you to make regular payments on the account. Qualifying for new lines of credit after bankruptcy can be more difficult than before, so it’s essential to look at all options and to even work with your bankruptcy attorney for guidance.
- Get added on accounts: If your spouse or parent has strong credit, you might want to ask them to add you as an authorized user on one of their accounts. You will need to check to see if taking this route will result in your authorized account being reported to credit reporting companies.
- Check your credit report: After bankruptcy, it’s essential to regularly check your credit report and score. This might be an unwelcome task as it can be hard to view your poor credit score, but it’s crucial to track what is showing up on your credit report and what moves are having a positive impact on your score. If any debts are still showing up, it’s essential to work with your bankruptcy attorney to ensure creditors are reporting correct balances and that accounts fall off your report as expected.
For my bankruptcy clients, after discharge, you will be enrolled in a credit score repair program. This is an online program that takes 15 or so weeks. It consists of about an hour a week of materials to review and what I can only describe as homework. This “homework” consists of all of the tips and tricks that can be done after the discharge of bankruptcy to rapidly repair your credit score. In the big picture, the farther you are away from the bankruptcy date and the higher your credit score, the better options you’ll have available for new credit. The whole purpose of this program is to get your credit score as high as possible after bankruptcy so two years after discharge of your bankruptcy case, your credit score is recovered as best as it can be given your situation — such that you can apply for an FHA home loan. While you’ll still need stable work history, a down payment, and the ability to pay a mortgage, this program helps you so as much as can be done to get your credit score ready for a future home loan. My clients that have done 100% of the work through this program report very good results.
Further, as part of this program, I have another law firm whose focus is Fair Credit Reporting Act matters (FCRA) review your credit reports after the bankruptcy to make sure the credit reporting agencies are reporting correctly that after-bankruptcy balances.
As of the writing of this post (10/21/22), both the credit score course and our FCRA review by another law firm are included in your bankruptcy attorney fees.
My focus on helping my bankruptcy clients is to not only get them out of debt, but to also get them back on track as quickly as possible after the bankruptcy so they can move on with their lives and never need the services of a bankruptcy attorney again.
Let Us Help You
If you are considering filing for Chapter 7 or Chapter 13 bankruptcy, let our lawyers at The Law Offices of Alexzander C.J. Adams, P.C. help prepare you for what to expect and how to prepare for its impact on your credit score. We work for you, the people, and not institutions. Contact us for a free case evaluation, or no-obligation consultation. We are dedicated to helping you overcome this small bump in the road and assisting you to get on with your life.