by:
Wade Waldrip
on Thu Jun 8,2017 19:58:57
People often express concern over the affect filing bankruptcy will have on their credit score, as well as their ability to reestablish credit after filing bankruptcy. The answers to these questions can be somewhat complex, depending on the circumstances, as well as the specific type of bankruptcy under consideration.
People contemplating bankruptcy frequently have low credit scores to begin with.
In such cases, filing bankruptcy makes little difference relative to an already poor credit score. In fact, filing a bankruptcy case in these circumstances may actually improve a low credit score. Think of it this way: someone burdened with multiple charge-offs, delinquent accounts, collection lawsuits, or repossessions is in credit "free-fall." Their credit score will steadily deteriorate unless and until affirmative steps are taken to improve matters. Sometimes those steps require that a bankruptcy case be filed. Once the bankruptcy is filed, the debtor's downward economic spiral immediately terminates, thereby allowing that individual to begin the process of rebuilding credit.
Secondly, people invariably file bankruptcy out of desperation, after they've tried, and failed, to resolve their economic problems through other avenues. An imminent wage garnishment or home foreclosure are typical catalysts leading to bankruptcy. Given the fact that bankruptcy is always a last resort, filed only to prevent economic catastrophe, its affect on one's credit score is ultimately irrelevant. Simply stated, if someone files bankruptcy, it's because they HAD to. In practical terms, these individuals simply do not possess the luxury of worrying about bankruptcy's impact on their credit score.
The type of bankruptcy that is contemplated also impacts one's ability to reestablish credit.
There are two different consumer bankruptcy cases, Chapter 7 and Chapter 13, each
of which is designed to address different financial problems. Only an experienced bankruptcy attorney can help you decide whether Chapter 7 or Chapter 13 works best for you.
Chapter 7 bankruptcy is generally uncomplicated and relatively fast. Accordingly, reestablishing credit after Chapter 7 tends to be fairly straightforward. In fact, people who file Chapter 7 often express surprise that they are bombarded with credit card applications and solicitations for automobile loans shortly after their bankruptcy case is filed.
One of the simplest ways to get back on the path to creditworthiness is to obtain a so-called "secured credit card" following your bankruptcy discharge. These are basically debit cards that look exactly like a conventional Visa or Master Card. The applicant is required to deposit money in a financial institution and is thereafter issued a credit card with a credit limit in an amount equal to the amount on deposit. A multitude of banks issue secured credit cards.
Chapter 13 cases are appreciably more complicated than Chapter 7 cases. In addition, someone who files Chapter 13 is ordinarily not eligible to receive a bankruptcy discharge for five years from the date the Chapter 13 case was filed.
One of the knowledgeable and experienced bankruptcy attorneys at McDonald Law Offices will be happy explain the differences between Chapters 7 and 13 and answer all your questions regarding them.
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