Let Filing for Bankruptcy a Last Alternative
admin | Finance | November 17th, 2008
Learn about Chapter 7 and Chapter 13 bankruptcy and how the affect your credit rating.
Many individuals find themselves in an unforeseen set of financial problems. Creditors begin to call night and day and letters begin to come in from collection agencies. Many people begin to consider bankruptcy a feasible option to ease the pressure of these issues. Taking that step, on the other hand, can have a lasting effect on your credit score. The best thing to do is to consult with an attorney knowledgeable in bankruptcy to see what rights you have before you ever go ahead with filing.
With a bankruptcy, your credit score will go down. Even debts that are discharged during the bankruptcy proceedings will not leave your credit report for some time. These items will linger on your credit score until you take the steps to get them removed. The two different kinds of bankruptcy will have different effects on your credit score.
The Two Types of Bankruptcy
Bankruptcy comes in different categories. One type is Chapter 13 bankruptcy. This kind of bankruptcy is also known as a reorganization of debt. The reason that it is referred to in this manner is that you are not getting out of your debts, but instead you are working out arrangements with your creditors to pay the debt back on a longer time scale that you can manage. This is the best option for anyone that has been plunged into a temporary financial crisis from a job loss or an unexpected illness. This type of bankruptcy will be part of your credit history for the next seven years. A Chapter 13 bankruptcy, however, does show creditors that you were responsible enough to take care of your debts and pay the money back. Many people are able to get credit after a year, especially if they have been able to repay some of the debts in the bankruptcy.
The second type of bankruptcy is called Chapter 7. This is a more significant type of bankruptcy in terms of the overall and lasting effect on your credit score. In this type of bankruptcy, all of your debt will be forgiven except for child maintenance, taxes owed, and alimony. The drawbacks of a Chapter 7 bankruptcy is that you are very unlikely to get any type of credit for at least two years. The bankruptcy will remain on your credit report for the next ten years. The only type of credit that you will still be able to obtain is a federal student loan, as it is illegal for you to be denied a federal student loan after a Chapter 7 bankruptcy.
Repair Your Credit Score After Bankruptcy
You may have a tough time obtaining new credit subsequent to bankruptcy. Two years after filing a Chapter 7 bankruptcy, you may have a chance to obtain a home loan. You may even be able to secure one as soon as one year following a Chapter 13 bankruptcy. However, credit cards will not come as readily as they once did, since individual lenders establish their own credit standards.
After filing for bankruptcy, you will need to prove to lenders that you have mended your ways and that your financial situation is under control. It is extremely important to pay all your bills on time, since even a single late payment on your credit report will appear to lenders as if you are still experiencing financial difficulty. Anticipate paying a higher interest rate on most loan types after a bankruptcy. However, once you work to repair your credit, you can try to refinance these loans at more reasonable rates.
Most lenders actually only look at the last year or two of your credit history. This gives you the chance to rebuild your credit much sooner than you might have thought possible. Be willing to meet the requirements that a lender asks for in the beginning , and you will be well on your way to achieving a better credit rating.
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Tags: bankruptcy bankruptcy, bankruptcy proceedings, chapter 13 bankruptcy, chapter 7, collection agencies, credit history, credit rating, credit report, credit score, creditors, debts, different kinds, feasible option, financial crisis, job, reorganization, seven years, time scale, types of bankruptcy, unexpected illness
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