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Does Bankruptcy Affect Your Credit Rating

Bankruptcy Attorneys Serving Libertyville Waukegan And Arlington Heights

Does Bankruptcy Affect Your Credit Score?

If you are considering filing for bankruptcy, you probably have many concerns. One of the biggest worries you might have is how bankruptcy will affect your credit and for how long. At Newland & Newland, LLP, we recognize that filing for bankruptcy will have a negative impact on your credit rating. There is no disputing that reality, at least in the short term. In many cases, however, the negative effect on your credit score would be much worse if you did not take any action to resolve your debts.

The skilled attorneys at our firm have more than 60 years of combined legal experience. We are equipped to provide skilled guidance and trusted representation in all types of bankruptcy proceedings. Our team will also work with you to estimate the impact that your filing will have on your credit and to make the best possible decisions for your future.

Effects Of Chapter 7 Bankruptcy

A successful Chapter 7 bankruptcy will be part of your report for up to ten years after it is completed. Because most of your debts will be discharged in a Chapter 7, those will actually come off your credit report even sooner. Most discharged debts drop from your credit rating after seven years. As you are waiting for the bankruptcy to drop off, you should focus on continuing to meet your obligations and meeting them on time. This is the fastest way to improve your credit rating.

Will A High Credit Score Help You During A Bankruptcy

Myth: A clean credit historyone with no late payments or other issuesand a high credit score means youll be less impacted by a bankruptcy.

The truth: Bankruptcy will have a huge negative impact on your credit, and a previously positive payment history doesnt change that. In fact, if you have a higher score, you could stand to lose more than if you already have a low score.

A bankruptcy also temporarily wipes out all the goodwill you might have developed with your timely payments. Some lenders may have rules about offering credit when a recent bankruptcy shows up on your credit historyno matter how good your score used to be.

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How Does Bankruptcy Affect My Credit Rating

Your credit report is maintained by one of two major credit rating agencies in Canada: Equifax and Trans Union. When you apply for a loan, whether a credit card or a mortgage, your lender will review your credit report. This report contains information about whether or not you have unpaid bills, how much credit you have outstanding and even how many times you have applied for credit.

If you file for bankruptcy a note will appear on your credit report indicating that you have done so. This information is provided to the credit bureau by the federal Superintendent of Bankruptcy. Each month they provide a list to the credit reporting agencies of everyone who has filed or a . It is important to understand that it is not your trustee advising the credit bureau of your bankruptcy, or your discharge. Rather it is part of the process completed by the Office of the Superintendent of Bankruptcy. They also provide a list of people who have been discharged.

Can I Apply For Credit

How Long Does a Bankruptcy Filing Stay on My Credit Report?

After your bankruptcy has ended, there is no restriction on applying for loans or credit. Its up to the credit provider to decide if they will lend you money.

Your credit reportwill continue to show your bankruptcy for either:

  • 2 years from when your bankruptcy ends or
  • 5 years from the date you became bankrupt .

It can take time to rebuild your credit rating.

For more information regarding your credit report, contact a credit reporting agency. Information about credit reporting agencies is available at ASIC’s MoneySmart.

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Bankruptcy Affects High Credit Scores More Than Low Credit Scores

The higher your FICO score is before a bankruptcy filing, the more it will affect your credit rating:

Score
Note: Scores do not go lower than 300130-150 points

You will likely drop to a poor credit score no matter what score you started with. Your credit history already shows you filed for bankruptcy, but credit bureaus want to ensure you take steps to improve your bad credit before you take on more debt and new credit.

The sliding scale system will generally knock your credit points however much it takes to show you have poor credit. Your score may barely change if you already have bad credit . It is not common to see credit scores lower than 500 even after a bankruptcy filing.

How Will Bankruptcy Affect My Credit Score

Many people considering Chapter 7 or Chapter 13 bankruptcy are worried about the effect bankruptcy will have on their . Although creditors don’t like to see bankruptcy on your credit report, the damage it will do to your credit scores depends, in large part, on how good your credit was before you filed.

If you’re delinquent on many accounts and your debt-to-asset ratio is high , your credit is already in the tank. If you file for bankruptcy, your scores will take a dip, but it won’t take a huge plunge. If, on the other hand, your credit is good before you file for bankruptcy, then your scores will take a much bigger hit post-filing.

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How To Reestablish Your Credit

After declaring bankruptcy, you’ll want to look at ways you can earn a score in a range that will qualify you for better financing options and that begins with rebuilding your credit.

You may not be able to immediately qualify for the best credit cards, but there are others that apply to people with less-than-stellar credit.

Secured credit cards require a deposit that acts as your credit limit. If you make your credit card payments on time and in full on this new secured card, you then have a greater chance at qualifying for an unsecured credit card in the near future.

The Capital One® Secured has no annual fee and minimum security deposits of $49, $99 or $200, based on your creditworthiness. Those who qualify for the low $49 or $99 deposits will receive a $200 credit limit. Cardholders can obtain a higher credit limit if they make their first five monthly payments on time.

The Citi® Secured Mastercard® is another option with no annual fee. There is a $200 security deposit required, which would mirror your credit limit. Cardholders can also take advantage of Citi’s special entertainment access, which provides early access to presales and premium seating for concerts and games.

Once you add this new credit car, make sure you pay your monthly bills on time and in full to quickly work your way toward better credit.

Editorial Note:

What’s A Credit Score

How does bankruptcy effect your credit score?

A credit score is a number that supposedly summarizes your credit history and predicts the likelihood that you’ll default on a debt. Lenders use credit scores to decide whether to grant a loan and at what interest rate.

FICO scoresthe most common type of credit scorerange from 300 to 850. A FICO score is based on the information in your credit report, including:

  • your debt payment history
  • how much debt you currently have
  • your different types of credit
  • how long you’ve had credit, and
  • whether you have new credit.

A high FICO score generally means that you’re good at managing your finances, while a low FICO score usually means that you have been delinquent with credit payments, have high unpaid debt balances, gone through a foreclosure, filed for bankruptcy, or experienced other problems repaying debt.

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How Can I Get A Copy Of My Credit Record

There are two ways to get your credit report : either through the mail or via the internet. If you want to obtain your credit report for free, you must use the mail. It is also important to do what you can to make sure your credit report shows a history of reliable credit repayments, and as few unfavorable repayment incidents as possible.

For more detailed information related to credit reporting, visit Equifax Canada or Trans Union website. Talk to a licensed trustee today. We have trustees everywhere from Calgary to Montreal and more. Get a free consultation today!

How Long Does A Chapter 13 Bankruptcy Stay On Your Credit Report

A Chapter 13 bankruptcy stays on your credit reports for up to seven years. Unlike Chapter 7 Bankruptcy, filing for Chapter 13 bankruptcy involves creating a three- to five-year repayment plan for some or all of your debts. After you complete the repayment plan, debts included in the plan are discharged.

If some of your discharged debts were delinquent before filing for this type of bankruptcy, it would fall off your credit report seven years from the date of delinquency. All other discharged debts will fall off of your report at the same time your Chapter 13 bankruptcy falls off.

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Common Myths About How Bankruptcy Affects Credit

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Filing for bankruptcy is devastating to your credit and can cause your credit score to plummet more than 200 points. But for people in dire straits, bankruptcy is a last resort that can help them liquidate assets, discard or pay off debts, and get some financial relief.

If youre considering bankruptcy, you need to understand how it will affect your credit. This involves clearing up some common misconceptions about how bankruptcy affects your credit.

Myth No. 1: If you dont have negative information on your credit report before bankruptcy, you will have a higher postbankruptcy credit score than if your report contained negative information before filing.

The Truth: Positive payment history and a lack of negative information does very little to minimize the impact of a bankruptcy on your credit score. The presence of a bankruptcy, and the length of time the bankruptcy has been on your report, are the strongest determining factors

Myth No. 2: All bankruptcy information stays on your credit report for 10 years, without exception.

The Truth: Only the public record of a chapter 7 bankruptcy lasts for 10 years. All other bankruptcy references remain on your credit report for seven years, including:

  • Trade lines that state account included in bankruptcy
  • Third-party collection debts, judgments and tax liens discharged through bankruptcy
  • Chapter 13 public record items

Once the above items start disappearing, you may see a bigger boost in your credit score.

Talk To A Bankruptcy Lawyer

How Does Bankruptcy Affect Your Credit Score?

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    Reestablish Credit As Soon As Possible

    Depending on whether you file Chapter 7 or Chapter 13, the bankruptcy will fall off your report in ten or seven years. However, if none of your accounts are more than ten years old, a bankruptcy may effectively put you in the same spot as an 18-year old with no credit history. Otherwise, it could create a virtual hole in your report, or a long time period in which it appears you had no credit at all.

    Therefore, its important to apply for credit soon after the bankruptcy is discharged in order to re-establish a credit history and rebuild your score. In spite of a blemished credit report, there are a few ways to begin this process:

    Accounts Included In Bankruptcy

    The accounts included in your bankruptcy filing will also have status notations for filing.

    • During your filing, account statuses will note included in bankruptcy
    • After discharge, the status will change to discharged in bankruptcy and the balance show $0

    These statuses and accounts remain on your credit report for seven years from the date that each account became delinquent. So, even if the bankruptcy record remains for ten years, the accounts included will drop off your report after seven.

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    So How Can A Bankruptcy Filing Possibly Help My Credit Rating

    Think of your credit report like a timeline that dips down when negative information is reported and steadily goes up with every on-time payment you make. After a while, the bankruptcy filing will be nothing more than a blip in your timeline.

    Remember, your credit history is ⦠well ⦠history. What you do to improve your personal finances today matters more than what you did last year! Letâs take a look at some of the things you can do to build good credit after a bankruptcy filing.

    Can I Improve My Credit Score After Bankruptcy

    Bankruptcy: How does it affect my credit score?

    Even though bankruptcy remains on your credit report for up to ten years, you can start rebuilding your credit right away. Credit scoring companies look at several factors when computing your scores:

    • your payment history
    • your outstanding debt
    • the length of your credit history, and
    • how much new credit you’ve applied for.

    You can start to improve your credit after bankruptcy by making all of your payments on time. Keep your debt load low, especially as compared to your available credit. And when you are ready, get a credit card, make small charges, and pay the bill off in full every month.

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    Getting Approved For Credit

    So what might help you get approved for credit after bankruptcy? Again, this is completely dependent on the type of credit you are trying to get approved for, and the providers internal policies.

    If you can show that your financial situation has changed and you are now able to effectively manage your debt and have overcome your bad habits, this could go a long way for a creditor. Good banking habits, such as no dishonours and no overdrawn accounts, could also go a long way.

    It is worth pointing out here that if you have applied for bankruptcy or are in the process of establishing a debt agreement, but it has not yet been accepted or finalised, you cant apply for credit. Applying for finance during this period could be construed as fraud.

    Why You Need To Work On Your Credit Asap

    If you have a 550 credit score, borrowing is going to be challenging. A credit score of 550 or lower is usually too low to qualify for a mortgage. However, youre not that far off from the score you need to qualify for this good debt. With FHA financing options, you only need a 560-600 to qualify. Of course, if you want to use traditional financing options, you generally need at least a 600 credit score.

    However, besides loan approvals there are other concerns that come with a low score:

  • Lower credit limits on credit cards, even cards offered through pre-approved screenings
  • A higher interest rate on almost any type of financing you seek increases total cost and may increase monthly payments, too.
  • Less ability to qualify for attractive advertised terms on financing like car loans i.e. you cant qualify for $0 down advertised dealership loans.
  • So, is bankruptcy bad for your credit? Yes. But it might not be as bad as you think. And there are financing options specifically designed to help people in your situation. For instance, there are solutions for buying a car after bankruptcy.

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    Retention Period Of Data On A Credit Report

    Information from various credit scores remains on your credit report for different lengths of time.

    • Three years from the date of the inquiry. The system will keep a minimum of five inquiries.
    • Voluntary deposit, orderly payment of debts or credit counselling. Three years from the date of full payment.
    • Registered consumer proposal. Three years from the date it is fully performed, or six years from the date it was filed, whichever comes first.
    • A credit transaction will automatically purge seven years from the date of last activity.
    • Bankruptcy. Six or seven years* from the date of discharge, depending on the province in which you filed. If more than one bankruptcy is declared, the system will keep each bankruptcy for fourteen years from the date of each discharge.

    *6 years in AB, BC, MB, NS, NU, NWT, SK, and YT 7 years in NB, NL, ON, QB, and PEI.

    Building Credit After Chapter 7 Bankruptcy

    How Does Bankruptcy Affect Your Credit Score?

    Most can rebuild their credit rating and have a better score than ever within 1 – 2 years after they file Chapter 7 bankruptcy. But, you canât take this for granted. To get the full benefit of your bankruptcy filing, youâll have to make an effort to improve your credit score.

    Getting new credit after filing bankruptcy – itâs easier than you might think!

    One of the biggest surprises for many bankruptcy filers is the amount of car loan and credit card offers they receive – often within a couple of weeks of filing their case. Itâs a lot! Why?

    Filing Chapter 7 bankruptcy makes you a low credit risk

    The Bankruptcy Code limits how often someone can file a bankruptcy. Once you get a Chapter 7 bankruptcy discharge, youâre not able to get another one for 8 years. Banks, credit card issuers and other lenders know this.

    They also know that, with the possible exception of your student loans, you have no unsecured debts and no monthly debt payment obligations. This tells them that you can use all of your disposable income to make monthly payments.

    Beware of high interest rates

    Pay close attention to the interest rates in the new credit offers you receive. Credit card companies and car loan lenders have the upper hand here. They know you want to build your credit rating back to an excellent FICO score. And they know that youâll be willing to pay a higher interest rate than someone with perfect credit and no bankruptcy on their record.

    Shop around

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