Effects on Credit after Bankruptcy


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Bankruptcy is a serious process, and only those that are fully aware of what this entails should proceed with all appropriate files, records and information supplied to the officials. The effects this method of debt erasure cause are often negative and detrimental to the credit of applicants seeking to remove arrears.

While bankruptcy is often the most drastic measure to take when debts are overwhelming, it is not without consequences. The negative effects on credit may last several years after bankruptcy is complete. The agent assigned to the individual case may explain these matters. However, it is up to each applicant to research and understand what the process entails. The actual bankruptcy itself may remain on the credit report of each person for up to or greater than ten years. The credit scores harmed by the process may cause the person to lose out on other opportunities.

What is Bankruptcy?

When someone is behind in his or her accounts, loans and payments, bankruptcy is often the last resort to attempt to wipe them away. A Chapter 7 is the most common form to accomplish this. By filing and following through with valid documentation, the applicant may find most or all of his or her debts erased. However, this could also include a vehicle, house or other assets. It is important to ensure the process is understood fully before filing. Any other issues should remain or finalize before bankruptcy starts. This ensures fewer difficulties through the months or years it takes to complete.

Credit Effects through Bankruptcy

The type of Chapter filed through bankruptcy will determine how much impact on the credit score occurs. This could lead to anywhere between 160 to 220 points off the current credit of the applicant. This may conclude with a poor rating. This does cause severe consequences in acquiring loans, credit cards and mortgages. However, the score could increase significantly when new debts do not incur the same late payments. Even if the bankruptcy is still on the report, the individual may increase his or her score to a management level with the right processes.

Bankruptcy on the Credit Report

A Chapter 13 bankruptcy is necessary for those that have enough disposable income to pay off some debts. This process could take months to years. But, the discharge may occur after seven years’ time. There is a three to five-year time frame needed to complete the payment plan. Chapter 7 is necessary for those that cannot pay anything and have little disposable income. This process generally takes only a few months. However, the bankruptcy remains on the report for up to ten years before discharge is possible. Many of the debts will fall off before the bankruptcy disappears.

The Chapters and the Applicant

Based on the disposable income after all debt payments are made, the applicant will need to either file for Chapter 7 or 13. If a
business is part of the picture, Chapter 11 or 13 in usual instances. This often depends greatly on which type of debts are drowning the owner. Once the appropriate method is discovered, it is essential that the applicant disclose all information. Attempts to hide assets could lead to severe consequences. Generally, the bankruptcy agency will discover the information and may proceed with criminal charges or ban the individual from filing in the future.

In a Chapter 7 process, assets may transfer to the trustee of the bankruptcy for sale. The proceeds go to the debts accrued. Chapter 13 may protect these for the applicant due to some payments provided to debt collectors. The agent assisting with these processes may disclose the necessary details of what to expect. In Chapter 13 or 11, these employees work closely with the individual to ensure the best possible conclusion occurs. This may help the person improve credit scores once the bankruptcy is complete. Rebuilding after the process is difficult and usually takes time.

Legal Support in Bankruptcy

Checking credit and ensuring that the score may improve is a complex process. Through working with the bankruptcy agent, the finances may improve. The goal is to ensure that the applicant may recover during and after the procedure. Often, it is beneficial to have a legal professional assisting with the bankruptcy. He or she will ensure the rights of the client are safe from possible violations. This may prevent offenses to the bankruptcy from occurring. Then, the applicant may finalize the event and recover from debts and life’s complications.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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