How much will my credit rating drop after filing bankruptcy?
Anyone that claims they can predict the reduction in your credit score after bankruptcy is best to be avoided. The specific point decrease depends on what your credit score was like before filing, the length of your credit history, what debts were kept separate from the bankruptcy, and a host of other variables. Ultimately, so much depends on your individual circumstances that it is impossible to say.
What causes a bigger drop in your credit score---Chapter 7 or Chapter 13?
PayingPaul.Com has thoroughly researched this question and found no answer in terms of the initial credit shock from filing Chapter 7 versus Chapter 13. There three options, however: 1) your credit rating drops more dramatically in a Chapter 7 because in most instances you are given a “fresh start” without paying anything, which in theory should be worse from a payment history standpoint since it causes the creditor more harm than a Chapter 13, where you pay at least a portion of the debt back; 2) the immediate credit score impact is equal, but Chapter 13 stays on your credit report for less time and therefore ultimately causes less damage; or 3) Chapter 7 has less severe initial effects because the debt is wiped out completely, but has a more long lasting influence since it continues being reported to the credit bureaus for longer.
How long does Chapter 7 stay on your credit report?
10 years.
How long does Chapter 13 remain on your credit?
7 years.
A credit score is one thing, my credit report is another. Which one is worse to have on your credit report?
You are very wise. Credit scores are very different from your credit report. In other words, although a potential lender will almost certainly take into account your credit rating, they will look at your credit report as something completely separate. As with the question about how many points your score will drop, however, there are too many factors missing from this equation to give an answer.
What factors are missing that will have a bearing on how a lender views my credit profile?
The main aspects of your credit report that a lender will consider in terms of your bankruptcy are a) how long ago it was discharged and b) how long ago you filed. If you filed Chapter 13 and your payment plan is in year three of five, then it is highly unlikely you will qualify for a loan. Whereas a person who filed Chapter 7 and has since rebuilt their credit may still be an unlikely candidate for a loan, but he or she is in a far better position than the debtor who is still in the midst of their repayment plan through Chapter 13.
So why would anyone file Chapter 13 then?
Good question. The real advantage of Chapter 13 is it comes off your credit much faster than Chapter 7. This being the case, a consumer who filed Chapter 13 would be more likely (in most cases) to qualify for a loan eight years after filing than someone who did a Chapter 7 bankruptcy. Plus it is the only type or Chapter of bankruptcy that deals with certain debts.
I heard that lenders prefer to give recent Chapter 7 filers loans because they will have them “on the hook.” What does that mean?
This is referring to the fact that someone cannot file bankruptcy if they had filed Chapter 7 in the last eight years. So in other words, a lender knows that you have no other alternatives but to pay them back in full or have your wages garnished (depending on your state) until the debt is satisfied.
When can someone file Chapter 13 again?
Someone who has filed Chapter 13 and is going to file Chapter 13 again the time period is two years. If they are trying to declare Chapter 7 , the time period must be at least four years.
How long will personal bankruptcy stay on my legal records?
20 years.
Not set on doing bankruptcy? Good idea! Let PayingPaul.Com help you get out of debt without it! Fill out a form today!