Most people work hard to achieve their personal goals. They get an education or specialized training so that they can do a particular job. They start their own businesses or find employment in top-notch companies. In general, life can be really enjoyable. But once in a while, an unforeseen predicament arises that puts their financial world in a tailspin. It isn’t long before creditors are calling, the mail is filled with past due notices, and they receive a summons to appear before a judge regarding a debt they haven’t paid. Often times, the answer to dealing with the financial problems at this point is to file for bankruptcy.
In very general terms, bankruptcy is when you go to court, along with all of your creditors, and tell a judge that you are unable to pay your debts. The court decides that you can refinance your home and maybe one vehicle, but that you no longer owe a debt to all of those other creditors. You are relieved at having removed the burden of debt, but you are now faced with the reality that no one will give you a loan for many years to come.
You may ask, “How long does a bankruptcy stay on your credit report?” Bankruptcy is a serious matter, and if you actually go through with a bankruptcy, it will stay on your credit report for as long as ten years from the date it was filed. That is a long time to carry a black mark on your credit report. Even after a few years when you are finally able to consider taking on a credit account, the potential lender will see the bankruptcy and begin questioning you about it. There is a chance that the lender will consider you to be too high of a risk and deny you the loan.
There are two type of bankruptcy, Chapter 7 and Chapter 13. A Chapter 7 bankruptcy will generally allow you to keep your home and one vehicle. All of your other assets may be sold off to pay down the debt you owe to your creditors. Once this has happened, you are essentially freed of all those debts. A Chapter 13 bankruptcy is filed when you are seeking something more, like a debt restructuring or consolidation. You pay the bankruptcy agent a set amount each month, and that agent is then responsible for distributing the money to the various creditors.
In either case, the bankruptcy stays on your credit report for ten years. You are also may be required to attend a credit counseling course in order to learn how to better manage your finances. There are certain set eligibility requirements for each of these types of bankruptcy, but some of those requirements may vary state-by-state.
Affect on Credit Report
Your credit report will take a major hit when you file for bankruptcy. Your credit score will be about as low as it can be. The good news is you can only go up from there. The bad news is that it will take you a long time to get back to having a respectable credit score. In order to understand how you can improve your score, you should look at how a credit report is constructed. Once you understand all the parts of a credit report, you can begin to see how a bankruptcy can be a devastating course of action.
Improving Your Credit Score
When you view your credit score and report, you will see five major sections. Each of these sections in your credit report contains key information that helps potential lenders decide if you are a worthwhile risk or not. These sections include personal information, public information, a summary of your credit accounts, a list of credit inquiries, a history of your credit activities, and the contact information for each of your creditors. All of this information is compiled and fed into an equation that determines your credit score. If you have a bankruptcy on your credit report for ten years, you can be assured that your credit score is not going to be very attractive for many years.
It’s interesting to note that some who have filed for bankruptcy have been inundated with credit offers a short time after their case has been discharged. Because they no longer have debt, the ratio between how much they owe and how much credit they could have is actually rather low. This makes you rather attractive for loan companies. However, you can be sure that they know about your bankruptcy — it will be reflected in the outrageously high interest rates you will pay for a credit card with a small credit limit.