Bankruptcy comes in many different types, but the Federal Trade Commission (FTC) explains that most consumers who cannot handle their bills file either Chapter 13 or Chapter 7. Both of these bankruptcies hurt your credit score and make it hard to open future accounts, especially in the initial years after your case is discharged.
Definition
Chapter 13 bankruptcy is designed to let you keep some of your possessions, and it requires you to repay some of your debt, according to the FTC. Chapter 7 bankruptcy is more comprehensive, erasing almost all of your debts and liquidating the majority of your assets. Both of these bankruptcies are picked up from court records by Experian, TransUnion and Equifax credit bureaus, which keep them in your credit record for 10 years.
Credit Effects
Bankruptcy type does not matter in terms of credit score impact. The MyFICO credit score website explains that the number of accounts included in your filing, whether it was Chapter 13 or Chapter 7, is the most important factor. More accounts mean a worse drop in your score. Your credit records before the bankruptcy also have an influence. Your score goes down less post-bankruptcy if it was already extremely low before you filed.
Considerations
Chapter 13 bankruptcy is not as drastic as a Chapter 7 filing, but financial adviser Dave Ramsey warns that both types must be disclosed to employers or creditors who ask about your financial background. Employment and loan applications often inquire about past bankruptcy filings. Ramsey warns that failure to disclose your Chapter 13 or Chapter 7 case on those applications may constitute criminal fraud. Human resource departments and creditors only care that you could not handle your bills and had to turn to the courts for assistance, not which case type you chose.
Credit Rebuilding
You need new accounts to rebuild your credit after a Chapter 13 or Chapter 7 bankruptcy. Start out with a secured credit card, MSN Money writer Liz Pulliam Weston advises, because approval is easy even with battered credit. The bank gives you a card when you open a savings accounts and deposit at least $200. The money is frozen as collateral, and your credit line equals your deposit amount. Eventually other lenders will take a chance on you when they see months of on-time payments on your secured card. Your bankruptcy has less influence as it falls farther in the past and gets overshadowed by good performance on all your subsequent accounts.
0 comments:
Post a Comment