Question 1

How Does Bankruptcy Affect Your Credit?

Accepted Answer

Bankruptcy is a good solution for some people struggling with debt, but it can also affect your life in many ways. Its important to understand the possible consequences, as well as any potential alternatives, so you can make the decision that is right for you. Often people ask about the effects of bankruptcy on their credit score, so here are some things to keep in mind about bankruptcy and credit:

Question 2

Ask a Bankruptcy Attorney: What is Bankruptcy by Definition?

Accepted Answer

Bankruptcy is the process of dealing with insurmountable debt by having it erased by the court, or by setting a plan to pay some or all of it on more favorable terms over a three-to-five-year period. When you file for bankruptcy, you are telling the court you can not pay your bills and need the court help in dismissing them or making a payment plan. There are multiple types of bankruptcy, but the two most common ones for individuals are these:

In a Chapter 7 bankruptcy, most of your debt is relieved, with the exception of non-dischargeable debt like student loans, alimony or child support, and government debt like back taxes. Any significant assets will likely be liquidated, but in some cases you will be allowed to keep your house, car, household furnishings and retirement assets. If you still have debt on these, you will need to reaffirm and continue paying it even after your bankruptcy.

A Chapter 13 bankruptcy focuses on finding ways to facilitate eventually paying off all or most of your debt, even if its over a longer time period than the creditor would want. In this option, you can keep your assets as long as you continue paying any outstanding debt on them.

Question 3

How Long Does Bankruptcy Stay on Your Credit Report?

Accepted Answer

A Chapter 7 bankruptcy will last ten years on your credit report, and a Chapter 13 bankruptcy will persist for seven years. The next question people often have for a bankruptcy attorney is, How will this affect my credit score?

The answer depends somewhat on your current credit score. According to credit.com, a typical bankruptcy can cause a high credit score to sink by up to 200 points. An already lower score will drop by 130-150 points. Ironically, you lose fewer points if your credit score is already in need of repair. Generally, by the time a person considers bankruptcy, they have already lost some points on their score due to late or missed payments. Depending on how long you have been struggling to pay your bills, and what your score was prior to your financial challenges, you may still have a good score, or you may not.

Question 4

What is a Good Credit Score?

Accepted Answer

Credit scores vary between 300 and 850. Its important to know that not all lenders use the exact same criteria for deciding whether to extend credit. Some may approve you with one score while another may turn you down. But in general, credit scores are ranked like this:

Anything below 580 is considered a poor credit score.

Scores between 580 and 669 are usually deemed fair.

From 670 to 739 is considered the good range for credit scores.

740 to 799 ranks as very good.

Anything higher than 800 is deemed excellent.

Again, individual lenders have different requirements, and you do not necessarily need an excellent or even good credit score for every lending situation, but its never a bad thing to have a higher score.

Question 5

How to Check Your Credit Score

Accepted Answer

There are many ways to do this. You can pay to get your score from the three major credit providers, but if you currently have credit cards or a loan, you may be able to get your score for free. Check your statement or log into your account and you might be able to find it there. If that does not work out, there are many sites that provide free credit reports, but you will want to make sure you visit a reputable one. You may get one free credit report from each reporting agency by using the link below.

Question 6

How to Improve Your Credit Score After a Bankruptcy

Accepted Answer

The sooner you get back to paying your bills on time, and paying off debt if you chose a Chapter 13 bankruptcy, the sooner your credit score will improve, even with the bankruptcy on it. Additionally, avoiding new debt may be helpful, as credit scoring also takes into account your debt-to-income ratio. In other words, having a large amount of debt compared to your income will lower your score. You do not have to avoid all new debt forever, but getting some of your existing debt paid down before you take on more debt is a good idea.

If you did a Chapter 7 bankruptcy, you may have had all or most of your debt wiped out. In this case, its okay to take on some new debt right away, but be sure you will be able to make the monthly payments on it.

Some people worry they will not be able to get credit at all after bankruptcy. But because of how bankruptcies work, some lenders actually will extend credit because they know you can not go bankrupt again for several years. That means you have to pay them back! The bad news is that your interest rates may be higher because of the bankruptcy and a lower credit score. Again, this is a good reason to stick with an amount of debt you can pay off relatively quickly, to reduce the amount of interest you will pay.