Differences Between Chapter 7 And Chapter 13 Bankruptcy
With a Chapter 7 bankruptcy, most of your assets are liquidated, so you will not continue making payments on the accounts once they are included in the filing. Chapter 7 bankruptcies are usually discharged about three months after they are filed, and they remain on credit reports for 10 years from the filing date.
Unlike Chapter 7 bankruptcy, a Chapter 13 bankruptcy is an adjustment of debt plan, which means that you will repay a certain portion of the debts you owe. A Chapter 13 repayment plan usually lasts anywhere from three to five years, and your bankruptcy is not discharged until your repayment plan is complete. Because you do repay a portion of the debt you owe, a Chapter 13 bankruptcy is removed from your credit history sooner: seven years from the file date.
Here’s How Bankruptcies Impact Your Credit Score
While bankruptcies on your credit report will always get factored into your credit score for as long as they are on there, the impact on your score lessens with each year that passes. So, you may see a dramatic drop in your score in the first month immediately following your bankruptcy filing, but by the end of the first year it could have less weight, and certainly less in later years compared to year one.
Your own credit profile will also play a part in how much your credit score is affected when you declare bankruptcy. Similar to how having a higher credit score can ding your more points if you miss a credit card payment, so, too, is the case if you file for bankruptcy. According to FICO, someone with good credit may experience a bigger drop in their score when a bankruptcy appears on their report than someone with an already poor credit score.
Estimates we found online from places like Debt.org show how people with different credit scores would be impacted by a bankruptcy filing. Someone with a credit score of 780 or above would be dinged between 200 and 240 points, while someone with a 680 score would lose 130 to 150 points.
Whatever the case, no one really benefits from filing for bankruptcy. It’s an option of last resort that sometimes even those with good credit find themselves making.
What Happens To Your Credit When You File For Bankruptcy
How long your bankruptcy stays on your credit report depends on the type of bankruptcy you file. The two most common types of consumer bankruptcy are Chapter 7 and Chapter 13. In a Chapter 7 bankruptcy, you do not repay any of the debt owed. This type of bankruptcy listing remains on the credit report for 10 years from the date it is filed. Under Chapter 13 bankruptcy, you are responsible for paying back a portion of the debts that you owe through a debt repayment plan. A Chapter 13 bankruptcy is removed from your report seven years from the date it is filed.
Having a bankruptcy in your credit history will seriously affect your ability to obtain credit for as long as it remains on your report. If you do qualify for credit while the bankruptcy is part of your credit history, you will likely have to pay higher interest and fees than you would otherwise. It can also affect your ability to qualify for things like an apartment, utilities and even employment. Even insurance rates may be affected.
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You Can Improve Your Credit After Bankruptcy
Dont give up after youve filed for bankruptcyyou can improve your credit score. But be patient, because it could take some time. If you want a little extra help, sign up for our free , or consider ExtraCredit. Restore It, a feature on ExtraCredit, gives you an exclusive discount to one of the leaders in credit repair. They can help you work to get your score where you want it to be after youve filed for bankruptcy.
Chapter 7 And Your Credit Report
Chapter 7 is a liquidation plan, whereby your non-exempt assets are sold off to satisfy creditors. If thats the case, you may ask, then why did most people this year choose Chapter 7? There may be many answers, but one is certainly Texass generous exemptions offered under bankruptcy.
Texas law allows you to keep a personal home of almost any value, along with one car for each family member . Another reason could be the speed of discharge. A Chapter 7 should generally be over and done within six or so months.
The downside is that Chapter 7 stays on your credit report for 10 years.
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How Will Bankruptcy Affect My Credit Options
Filing for bankruptcy means youll have a negative mark on your credit report that makes it difficult to borrow money.
However, most people are able to resume using credit roughly two to three years after they have been released from bankruptcy.
In addition, bankruptcy might not affect your current mortgage if youre making enough money to continue making payments.
However, it can limit certain credit options and will prevent you from accessing the full range of financial products available.
As such, you may want to reconsider filing for bankruptcy if youre concerned about future credit options.
How Long Does A Bankruptcy Stay On My Credit Report
Are you worried about how filing for bankruptcy is going to impact your future finances and your credit report?
Heres what you need to know.
People often assume that once you finish filing for bankruptcy, the slate is wiped clean and you can start again from a fresh financial situation.
In a way, this is true.
Its likely that the majority of your debt will be cleared with the exception of things like child support.
However, filing for bankruptcy does have far-reaching consequences.
It will, for instance, impact your credit report and you need to be prepared for this.
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When you file for bankruptcy in Canada, there are two different credit reporting agencies.
Both have different ways to report bankruptcies.
The first is Equifax.
In this case, a bankruptcy will stay on your record six years once the discharge has been completed or seven years after the filing if there is no discharge.
Its possible that a second bankruptcy is filed.
In this case, the first will re-appear and both remain on record for fourteen years.
The other is Transunion.
According to the business, their reporting differs depending on your province and the credit reporting legislation that is in play here.
In some cases, the bankruptcy remains on the report for seven years or fourteen for a second filing.
So, typically, the difference between the two is one year.
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Review Your Credit Reports
Monitoring your credit report is a good practice because it can help you catch and fix credit reporting errors. After going through bankruptcy, you should review your credit reports from all three credit bureausExperian, Equifax and Transunion. Due to Covid-19, you can view your credit reports for free weekly through April 20, 2022 by visiting AnnualCreditReport.com.
While reviewing your reports, check to see if all accounts that were discharged after completing bankruptcy are listed on your account with a zero balance and indicate that theyve been discharged because of it. Also, make sure that each account listed belongs to you and shows the correct payment status and open and closed dates.
If you spot an error while reviewing your credit reports, dispute it with each credit bureau that includes it by sending a dispute letter by mail, filing an online dispute or contacting the reporting agency by phone.
Keep Your Credit Utilization Ratio Low
Another key credit score factor is your it accounts for 30% of your FICO Score. Your credit utilization ratio measures how much of your credit you use versus how much you have available. For example, if your available credit is $10,000 and you use $2,000, your credit ratio is 20% .
Although its often recommended that you keep your ratio below 30%, you may be able to rebuild your credit faster by keeping it closer to 0%.
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Is Chapter 13 Bankruptcy Better For My Credit Than Chapter 7 Bankruptcy
According to FICO , whether you file for Chapter 13 or Chapter 7 bankruptcy makes no difference to your credit scores. But it’s possible that a potential creditor viewing your credit report might look upon one type of bankruptcy more favorably than another. For example, some creditors might view someone who files for Chapter 13, in which you repay some or all of your debts over a three- to five-year period, as more responsible, and thus a better credit risk, than someone who files for Chapter 7.
How Does Bankruptcy Work
When you’re declared bankrupt, the value of your possessions is usually shared out among those you owe money to. This can include your house, car, leisure equipment and jewellery â everything except the essentials. Depending on your income, you’ll also be asked to make payments towards your debt for up to three years.
Sounds gloomy, but there’s a silver lining. Once you’re declared bankrupt, you won’t have the pressure of dealing with creditors anymore. Lenders will also have to stop most types of court action against you. And, most relieving of all, you will usually be ‘discharged’ â in other words, freed from your debts â after one year.
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What Happens To Your Debts
Most, and likely all, of your unsecured debts will be forgiven when you declare bankruptcy. This includes all debts from the date of the filing. Your filing must include a list of your creditors and how much you owe to each. Those creditors must then make a claim and prove that you owe them the debt.
How To Rebuild Your Credit Score After Bankruptcy
It would help if you began to think about life after bankruptcy at some point. How you enter this phase will be determined by how well you utilize the ten years. It is possible to rebuild your damaged credit score here are some tips.
1) Credit reports review
Regular assessment of your credit history will keep you vigilant and make you spot any anomalies or errors that appear out of trend. Financial advisers recommend going through your credit history plan better and being more prepared to handle emergency events.
You should check for the following
- All accounts discharged upon completion of bankruptcy indicate that they have zero balance. Check the profile it should be showing.
- Confirm if all the accounts are yours. Take a look at the payment status and dates.
- After completing bankruptcy, you should check your accounts to see if they are marked as discharged. The profile should state that default termination is because the period has naturally ended. Their balances should also be zero.
- There is always room for a mix-up of account information. Check the account numbers to confirm if they are the ones that you opened. You can counter-check the dates opened and closed to see if it matches your records.
2) Honor all payments
3) Low Credit Ratio Utilization
4) Secured Credit card
Through practice, you will learn how to gain control over your money. A secured credit card will help you to do this. You will make a security deposit that will stipulate your limit.
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Bankruptcy Affects High Credit Scores More Than Low Credit Scores
|Note: Scores do not go lower than 300||130-150 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.
A Fresh Start After Bankruptcy
Mei Ling and Matt are a married couple who rent a flat in Gosford NSW. Both worked full time until two years ago when Matt lost his job. Mei Ling now works part time earning less than $40,000 per year.
For two years they tried to survive on Mei Lings wage, struggling to make repayments on their overdue credit cards and loans. They ended up with unsecured debts of over $65,000.
The only assets they owned were a car worth $5,000 and general household goods .
The pressure from their creditors became too much to handle. Debt collectors and process servers were constantly calling on them. Their electricity was turned off a few times and they stopped answering phone calls because it always seemed to be bad news. Matts health was also suffering and he was treated for depression. Most nights Mei Ling would end up in tears thinking about their situation.
They finally decided to see a financial counsellor. There was no charge for this service. The financial counsellor looked through their finances and suggested they consider filing for bankruptcy.
Matt and Mei Ling went home and looked in detail at the AFSA website. They read all about their options and the consequences of bankruptcy. The AFSA website showed that they would be able to keep their car because it was worth less than the set amount. They read they could also keep their household goods. In the end, they decided that bankruptcy would be the best option for them.
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How Long Does A Chapter 7 Bankruptcy Stay On Your Credit Report
After you file for a Chapter 7 bankruptcy, it remains on your for up to ten years and youre allowed to discharge some or all of your debts. When you discharge your debts, a lender cant collect the debt and youre no longer responsible for repaying it.
If a discharged debt was reported as delinquent before you filed for bankruptcy, it will fall off of your credit report seven years from the date of delinquency. However, if a debt wasnt reported delinquent before you filed for bankruptcy, it will be removed seven years from the date you filed.
Equifax And Transunion Credit Reports
Both Equifax and TransUnion maintain a bankruptcy record on your credit report for a period from the date of your discharge or last payment.
For first-time bankrupts, TransUnion maintains the information for the maximum length of time permitted by provincial law , while Equifax retains the information for 6 years for every province.
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Can You File Bankruptcy Yourself In Canada
It is not possible to file for bankruptcy yourself in Canada. Licensed Insolvency Trustees are the only professionals in Canada that can administer bankruptcies and consumer proposals. They hold a license from the Canadian Superintendent of Bankruptcy, and you must work with a LIT on your filing.
Alongside helping you build your bankruptcy filing, a LIT will provide information on other forms of debt relief, such as a consumer proposal. When picking a Trustee, it is best to select someone local and someone you are comfortable working with. Never be afraid to ask your LIT questions, and always confirm they have a license from the Superintendent of Bankruptcy.
If you need a Licensed Insolvency Trustee, pick someone with whom you are comfortable working. See here to .
How To Build Back Your Credit After Bankruptcy
Rebuilding your credit after filing for bankruptcy can seem daunting, but there are some steps you can take to help your credit history begin to recover:
- Make sure all payments are on time going forward. Sometimes, the bankruptcy court will allow you to keep certain accounts open. If you still have open and active accounts that were not included in bankruptcy, be sure to make every payment on time.
- Open a new account. If you are starting from scratch with no remaining open accounts, it can be difficult to qualify for new credit after bankruptcy. Consider opening a secured credit card, getting a , or asking a friend or family member to add you as an on their credit card. Making small purchases and then paying the balance in full each month will help build a positive payment history, which in time can help offset the negative impact of the bankruptcy.
- Check your credit report frequently. Stay on top of your credit situation by reviewing your credit report often. You can also request your free credit score from Experian, which will include a list of the top risk factors impacting your scores.
- Sign up for Experian Boost. Adding your on-time cellphone, utility and streaming service payments with Experian Boost can help you increase your credit score so you can start to rebuild after bankruptcy.
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How Long Does A Bankruptcy Stay On Your Credit Report
When consumers have more debt than savings and are faced with mounting bills and saddled with other ones such as student loans, filing for bankruptcy might be the only option. However, if you are considering filing for bankruptcy it’s important to consider the long-term consequences.
One of these consequences is the impact bankruptcy can have on your credit. Depending on how you file, the bankruptcy could remain on your credit report for seven or as long as 10 years. People who have exhausted all their options and can not get another job or increase their income are faced with few choices.
Filing for bankruptcy often remains the only viable choice for some individuals. People who are considering filing for bankruptcy should first consult with a non-profit credit counseling agency or attorney to see if it is the right choice for them.
The law states that consumers must also seek pre-filing bankruptcy counseling. The counseling helps people learn about several options other than bankruptcy, such as settling with creditors, entering into a debt management plan or simply not paying the debt.