A common concern among debtors is the potential impact that bankruptcy can have on one’s credit score. This is a valid concern. However, credit score impact is just one of many factors to consider when deciding whether to file for bankruptcy. For example, allowing one’s debts to go to collections can have as much of an impact on credit score as a bankruptcy filing. Therefore, while credit impact should definitely be considered when determining whether to file for bankruptcy, it should not be the sole consideration. Below is an overview of the ways in which bankruptcy can impact one’s credit score and credit report.
Credit Score
The impact that bankruptcy will have on a filer's credit score depends on the type of bankruptcy filed. However, regardless of whether one files for Chapter 7 or Chapter 13 bankruptcy, a credit score decrease of approximately 150 to 200 points should be expected. And because most lenders consider an applicant’s credit score when making lending decisions, this decrease can make it difficult to qualify for a loan.
Fortunately, the effect of bankruptcy on credit score lessens over time. And it is for this reason that bankruptcy may sometimes be a better option than allowing debts to be sent to collections. In addition, there are a number of other steps that bankruptcy filers can take to raise their credit scores. Therefore, as mentioned above, credit score should not be the sole factor one considers when determining whether to file for bankruptcy.
Credit Report
Chapter 7 bankruptcy can remain on a filer's credit report for up to ten years. Also, because all eligible Chapter 7 debts are discharged within a few months of the conclusion of a bankruptcy case, they are normally removed from the debtor’s credit report several years before the removal of evidence of the bankruptcy. Discharged debts are typically removed from a debtor’s credit report after seven years.
A Chapter 13 bankruptcy filing, on the other hand, can remain on a credit report for up to seven years, and debts discharged under Chapter 13 can remain on the report for seven years after they are discharged. And since debts remain active in a Chapter 13 bankruptcy until a filer's creditors have been repaid according to terms of a repayment plan, discharged debts can remain on one’s credit report longer than evidence of a bankruptcy.
Bankruptcy provides Florida debtors with an effective method of rebuilding their financial futures. However, it can be extremely difficult to navigate the bankruptcy process alone. Therefore, if you are considering filing for Chapter 7 or Chapter 13 bankruptcy in Florida, please contact the Law Offices of Jeffrey A. Herzog, P.A., to discuss your situation. Our experienced Florida bankruptcy attorneys will walk you through the bankruptcy process while ensuring that you understand all of your legal options. Please contact us for a free consultation.