When navigating bankruptcy, it is understandable that one of your top considerations is how to alleviate your debt, fast. But, have you considered how your previous bankruptcy will affect your future? Various considerations, including your credit score, should be thoroughly researched when in the midst of the bankruptcy process to ensure that you are able to regain financial stability. Here, the Baltimore bankruptcy attorneys at Grossbart, Portney & Rosenberg, P.A. discuss how your credit score is affected during and after bankruptcy, as well as steps you can take to plan for a financially stable future.
Not All Bankruptcy Filings Affect Your Credit Equally
For individuals and small businesses, Chapter 7 and Chapter 13 bankruptcies are often filed. Chapter 7 bankruptcy is also known as liquidation bankruptcy and occurs when you choose to liquidate your assets in order to pay off your debts. While this does help you establish financial stability faster, Chapter 7 bankruptcy can have a significant negative impact on your credit score. Chapter 7 bankruptcy can stay on your credit report for up to 10 years, Because you are liquidating your assets, you are not making any repayments, leading creditors to view you as a higher financial risk. While Chapter 13 bankruptcy still has an impact on your credit score, it is less likely to be as severe as Chapter 7. Chapter 13 bankruptcy is used for individuals who are unable to pay their debts back upfront and requires them to establish a 3-5-year payment plan to pay back creditors. Because of this, debtors will showcase the ability to pay back their debts on time and without issues, helping to gain the trust of creditors in the future. Thus, your credit score in a successful chapter 13, will increase your credit score.
Bankruptcy Debt Discharges Can Impact Your Credit Score
Another aspect of bankruptcy that can have an impact on your credit score is your number of debts and the amount you discharge. For example, if you have a large number of debts that you are unable to liquidate your assets for or pay back in an efficient manner, your credit score may suffer. Defaulting on these payments shows creditors that you are unable to maintain a consistent payment schedule and will affect your credit score in the future. Additionally, your previous credit history will play a role in your future credit score, especially in the time leading up to you filing for bankruptcy. If you have many accounts with a balance you are unable to pay, and little to no accounts that are paid on time, creditors will take your payment capabilities into account. However, while Chapter 7 bankruptcy can stay onto your account for up to 10 years, your discharged debts may disappear sooner.
It Is Vital to Rebuild Your Credit As Soon As Possible
To answer the question of if your credit score matters after bankruptcy, the short answer is yes. While your credit score will generally be affected the most soon after filing for bankruptcy, rebuilding your credit strategically is a fantastic way to achieve financial success. In an effort to rebuild your credit, there are many steps you can take to provide an accurate and comprehensive report for creditors to show your ability to make payments on time. First, be sure to make sure that your credit report accurately reflects your bankruptcy status. Although rare, creditors may be placing negative information on your account that does not reflect your current financial status.
Additionally, continue to pay non-bankruptcy accounts on time when you can. This shows creditors that you are not only able to stay up to date with needed payments but can go above and beyond in repaying your debts. Finally, if you have family members or friends that are able to assist you with getting back on your feet, ask them to co-sign for new credit accounts or loans. This provides both security for the creditor and debtor, allowing for you to rebuild your credit quickly.
Let Bankruptcy Attorneys Such As Grossbart, Portney & Rosenberg, P.A. Assist You
At Grossbart, Portney & Rosenberg, P.A., it is our top priority to guide our clients through the complexities of the bankruptcy process. We understand that this time can feel overwhelming, frustrating, and sometimes even impossible to overcome. With the help of Grossbart, Portney & Rosenberg, P.A., our experienced bankruptcy attorneys help you navigate communication and legal requirements with creditors and other applicable parties. To learn more about how our attorneys can assist you, contact our Baltimore office today.