August 25, 2020
It’s perhaps the most asked question by a debtor when they are considering filing for bankruptcy. An item on your credit score can be scary. How long does the filing stay on your report? Will you be able to borrow money after filing? How will you be able to rebuild your credit afterward?
In this blog post, we go over these questions, how bankruptcy affects your credit score, and how you can rebuild it.
The Essentials of Bankruptcy in Virginia
When you file for bankruptcy, it means you are unable to pay on some or all of the debts you owe.
The two most popular types of bankruptcy filings are Chapter 7 liquidation and Chapter 13 wage earner’s plan for debtors. Which chapter you file under will depend on your income and if you hold the ability to pay a portion of the accrued debts or not. The Chapter to file under will also depend on whether you have too much property that may not be protected within a Chapter 7 bankruptcy.
The bankruptcy chapter you file under will determine how long a bankruptcy filing stays on your credit report. Typically, that’s either 7 or 10 years.
What is a Credit Report?
A credit report is what loaners, banks, and other lenders use to determine if a person is able to pay their debts on time. When it comes to getting loans like a mortgage, car loans or a credit card, a credit score report is the first thing creditors examine.
The higher your credit score, the more likely you are to be approved for a loan at a lower interest rate than if you had a lower credit score.
Filing for any bankruptcy will affect your credit score, but it doesn’t make it impossible to rebuild your credit.
How Chapter 7 Bankruptcy Affects My Credit in Virginia
If you are filing for Chapter 7 liquidation, it means you have a very limited income and are unable to pay on your debts. Liquidation bankruptcy can sell your nonexempt assets to creditors to help pay off a portion and then wipes your financial slate clean. The filing process for this chapter will usually take between 3-5 months.
Usually, these filers have their unsecured debt (debt without collateral) discharged and no payment is required.
If you’re filing for this chapter, then you will have the filing on your credit report for 10 years.
A Chapter 7 filing will stay on your credit score longer than any other bankruptcy filing because most or all of the debt is unpaid for and no repayment plan is required.
How Chapter 13 Bankruptcy Affects My Credit
Unlike Chapter 7 bankruptcy, Chapter 13 requires a 3-5 year repayment plan after filing.
Also known as wage earner’s plan, this chapter is for those who have a consistent income. The repayment plan of this chapter works to pay off part or all of unsecured debts (credit cards, medical bills, etc.) and can pay past due payments on secured debts like car or house payments.
Because there is some sort of repayment of debts involved in this chapter, the filing stays on your report for a shorter amount of time than Chapter 7.
Chapter 13 bankruptcy will stay on your credit report for 7 years.
For both of these chapters, the time that a filing is on your credit report begins immediately when you file.
This means by the time your repayment plan for Chapter 13 is completed, you will be nearly halfway to not having the filing on your credit. While the filing is on your credit report, you may still be able to borrow and be approved for loans.
However, the interest rates of these loans will be substantially higher than they would otherwise.
Rebuilding My Credit After Filing for Bankruptcy
Rebuilding your credit after filing for bankruptcy may seem impossible, but it’s not.
Most of the time, chapters of bankruptcy require some sort of credit card counseling and financial help courses for debtors. This is to help the debtor become more aware of the proper ways to handle their finances.
On the same coin, for either chapter, a filer will have 7-10 years to rebuild their credit and begin a solid payment history.
In many cases, in order to rebuild your credit after bankruptcy, you need to obtain, use, and timely pay your debts. For example, after your bankruptcy is complete, you can obtain a credit card with a very small limit. You should only use the credit card for a necessity like groceries or gas that you would otherwise pay cash for. And each month you pay off that credit card. Over time your credit limit can increase which is one factor credit agencies use to determine your credit score.
Finding the Right Bankruptcy Lawyer
Sometimes bankruptcy is the best option to go with if you’re dealing with debt that seems unbearable and never-ending.
The bankruptcy lawyers at Cravens & Noll, P.C. have years of experience in dealing with cases and are ready to fight for your needs.
Any questions about bankruptcy, which chapter to file for, or how to rebuild credit? Give us a call today!