After transitioning from the Trustee to the consumer side in bankruptcy, I am fascinated to learn that credit scores usually increase within the first year after filing a bankruptcy case. Many people think the opposite, fearing the mark of a bankruptcy reflected on their credit report for up to 10 years. But if you think about it, the impact a bankruptcy filing has on your credit may not be much of an impact at all on your current situation if you are considering bankruptcy in the first place. You probably already have negative marks on your credit reports, such as past due accounts, accounts in collections, high credit card usage, car repossessions, judgments, or mortgages in foreclosure and so on. Without even filing for bankruptcy, negative marks will likely mean higher interest rates, longer terms, or a complete denial of credit
Filing bankruptcy can help put you back on the right track. By wiping the slate clean in bankruptcy, you can be on your way to a fresh financial start in just a matter of months. If you qualify for a chapter 7 case, you can begin to rebuild your credit in as little as three months since your income to debt ratio will already be improved once the bankruptcy court enters a Discharge and your bankruptcy is complete. While a chapter 7 bankruptcy stays on your credit report for ten years, you can work to improve your score during that period.
A chapter 13 bankruptcy is a 3 to 5-year process with the court’s Discharge being entered at the end of the 3 to 5-year term upon completion of the chapter 13 plan. In chapter 13 it takes longer to re-establish unsecured credit lines, such as credit cards, but you can still purchase cars and homes or refinance home loans before receiving a Discharge so long as you have the consent of the chapter 13 trustee or the approval of the bankruptcy court. Also, a chapter 13 bankruptcy appears on your credit report for only 7 years, as opposed to the 10 years for a chapter 7 filing. If your goal is to re-establish a favorable credit profile as quickly as possible, then chapter 13 may be a good choice for you in the long run.
While most everyone wants to romance the stone and seek out that coveted high credit score rating, I highly encourage my clients to pay cash for everything, if they can. I also advise them to save all they can before making major purchases and establish an emergency fund of at least $1,000.00 to $2,500.00 or more they can fall back on when things go awry, such as when the air conditioning fails during a heat wave. You never know how much you might need to “Press on Regardless”, without credit, following bankruptcy.
Are you overwhelmed by your current financial situation? If you are, call me today for a free consultation and learn how you can get a fresh start to a better financial future.
