If you are considering filing an individual Chapter 7 or Chapter 13 case, it is important to understand all of the pros and cons associated with bankruptcy. One of the primary concerns debtors have is how it will impact their credit score. The answer differs for each person, since no two situations are identical. However, for many individuals, their history of past due payments, repossessions or lawsuits have already negatively impacted their credit score. As a result, the bankruptcy filing does not have a huge effect, especially when compared to the benefit of eliminating debt and getting your finances back on track.
A Chapter 7 and a Chapter 13 filing effect your credit score differently. A Chapter 7 will remain on your credit report for 10 years from the date you file. A Chapter 13 filing remains on your report for only seven years from the time you file. The reason Chapter 13 is removed from your report sooner is because a Chapter 13 debtor repays a portion of what is owed to his/her creditors. Thus, the Chapter 13 debtor’s credit score is not as negatively affected by the filing as a Chapter 7 debtor’s score.
It is important to understand that in both types of cases, the longer you have been out of bankruptcy, the lower the impact of the filing on your credit score. Additionally, while a Chapter 7 notation remains on your credit report longer, it also allows you to eliminate more debt in a quicker amount of time. A typical Chapter 7 case lasts four to six months while a Chapter 13 case lasts three to five years. Thus, a Chapter 7 debtor receives a discharge of debt sooner and can start rebuilding his/her credit quicker.
For help understanding the pros and cons of filing a personal bankruptcy, contact our office for a free initial consultation.