The main issue that discourages most people from filing bankruptcy is the detrimental effect is has on their credit. It’s true that a bankruptcy can stay on your credit report for up to ten years and it seriously hurts your credit score. However, not filing for bankruptcy and allowing your debts to go to collections will also negatively impact your credit. Depending on the kind of bankruptcy you file, Chapter 7 vs. Chapter 13 bankruptcy, your credit score will decrease anywhere from 160 to 220 points. This is enough to take a good credit rating down to a fair or poor one. Since most lenders decide whether or not to extend you credit based on your credit score, a bankruptcy will make it much more difficult to qualify for an auto or home loan or credit cards. The primary remedy for this is time, though there are additional measures you can take to positively enhance your credit report and score. Ultimately, if you manage your new debts well, your score will gradually increase, and in time you will be able to run your financial life successfully, even if the bankruptcy has not yet dropped off your report. Check Your Credit ScoreIt’s important for everyone to check their credit report regularly, but it’s most essential for those who have recently filed bankruptcy. Maintain a list of the debts included in your bankruptcy and check their status a few months after your debts are discharged. If you filed Chapter 7, these debts should show a balance of $0 and no longer be listed as delinquent. If something isn’t being reported correctly, ask the credit report issuer to make the change and check with the original lender. Re-establish Credit as Soon as Possible After Bankruptcy FilingDepending on whether you file Chapter 7 or Chapter 13, the bankruptcy will fall off your report in ten or seven years. However, if none of your accounts are more than ten years old, a bankruptcy may effectively put you in the same spot as an 18-year old with no credit history. Otherwise, it could create a virtual hole in your report, or a long time period in which it appears you had no credit at all. Therefore, it’s important to apply for credit soon after the bankruptcy is discharged in order to re-establish a credit history and rebuild your score. In spite of a blemished credit report, there are a few ways to begin this process: • Store Credit Cards: Store credit cards often have lower requirements to qualify, though they tend to carry high interest rates and fees. As always, it pays to read the disclosures and application carefully. Do Your Homework on Credit Card Offers After Chapter 7One thing that puzzles many people who file bankruptcy is that they receive multiple credit card offers right after their bankruptcy is completed. You’d think that a fresh bankruptcy would be a strong deterrent to lenders. However, the banks know you won’t be able to file again for several years, so you are actually a better risk than you were before. Just make sure to read the fine print on any new debt you apply for, as many companies intentionally prey on people who recently filed bankruptcy by offering new lines of credit stuffed with fees, minimum payments, and extremely high interest rates. Over time, reports from these debts will start to raise your credit score, provided you use credit cards and rewards wisely by paying by the due date and in full every month. Initially, the only lenders to extend you credit will probably be small banks and credit unions. But, within a few years, you may be able to get approved with the national banks, which is important because big names on a credit report can potentially sway future credit decisions like a home mortgage in your favour. The passage of time alone will increase your score. Plus, as long as your report is filled with nothing but A+ grades, you should have a decent credit score within a few years, and even a good score by the time the bankruptcy drops off your report. Keep Your Oldest Accounts Active If You CanSince many people who declare bankruptcy previously had good credit, older items on their report can help their credit scores even if they later declare bankruptcy. The “length of credit history” factor, which makes up about 15% of your score, is generally not affected by declaring bankruptcy. In other words, keep these older accounts active and intact whenever possible to maintain the length of your credit history. Don’t Apply for Numerous AccountsAbout 10% of your credit score is determined by whether you have applied for new accounts recently. While you will need to apply for new credit to begin rebuilding your score, keep the accounts to a minimum and spread out your applications over time. This is especially true if you apply for a large loan like a mortgage or car loan. Credit rating companies consider it a bad sign if you apply for a lot of new credit all at once. Another reason to limit the number of credit accounts you apply for is so you can manage the ones you have effectively and responsibly. When Chapter 7 Is Better Than Chapter 13Knowing the basic differences between Chapter 7 and Chapter 13 bankruptcy is a start, but it’s hardly enough to help you decide which type of bankruptcy is for you. Let’s start by taking a look at when Chapter 7 bankruptcy is better than Chapter 13. When Chapter 13 Is Better Than Chapter 7 BankruptcyIf you have some disposable income and don’t have too much debt, you have the option to choose between Chapter 7 and Chapter 13 bankruptcy. It could reduce your monthly debt-repayment load Utah Bankruptcy LawyerWhen you need a Utah Bankruptcy Attorney, please call Ascent Law for your free consultation (801) 676-5506. We want to help you!
Ascent Law LLC
8833 S. Redwood Road, Suite C West Jordan, Utah 84088 United States Telephone: (801) 676-5506
Ascent Law LLC
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