As a general rule, it is best to consider bankruptcy as the least desirable option available to you when your finances have gotten out of control. However, if your financial situation has been going downhill for an extended period of time, your credit standing is probably so bad that filing for bankruptcy really won’t do much to make it worse, with one exception: A bankruptcy remains on your credit report for ten (10) long years. Nonetheless, creditors will know that once you file bankruptcy, you cannot do so again for 7 years.
When your finances reach the point where you consider them terminal, bankruptcy will provide relief in the sense that it will halt the never-ending dunning letters and telephone calls from creditors and collection agencies. The effect that it will have on your credit standing depends in part on which type of bankruptcy you file.
Chapter 13 Bankruptcy credit issues
Chapter 13 bankruptcy, also referred to as reorganization, does not discharge your obligations. What it does do, is permit you to ‘work out’ a plan for paying them off in amounts and timeframes that you can manage. Chapter 13 is designed to provide a solution for people who have suffered a short-term financial problem due to a job loss, sudden catastrophic illness, etc. If you still have a regular income and wish to avoid the stigma of a Chapter 7, a Chapter 13 filing can give you the time you need to correct your problem. This filing will combine an automatic ‘stay’ with three to five years to catch up on your backlog while you keep current on your ongoing monthly expenses. You will have to complete a U.S. Trustee-approved credit counseling briefing with your petition in order to have the court place a stay or hold on a foreclosure or repossessions. Your creditors will receive a notice from the court that stops their collection efforts and dunning in approximately fifteen (15) days after you file your petition.
A Chapter 13 bankruptcy will have a negative effect on your credit report, but it does show your willingness to pay your debts rather than to discharge them. That should help you obtain new credit within a year or so.
Chapter 7 Bankruptcy credit issues
From a credit standpoint, Chapter 7 bankruptcy is the blackest mark you can have on your credit standing. While it absolves you of the debts you owe (except for monies owed in child support & alimony or unpaid income taxes), it makes obtaining new loans or credit cards extremely unlikely for at least a year or two and perhaps longer. There are some exceptions. Federal student loans, for example, are not granted based upon credit history or income. In fact, federal law prohibits discriminating against applicants based upon these factors.
Getting New Consumer Credit Will Be Difficult After Either Bankruptcy
You may be able to obtain a home loan beginning two years after being discharged in Chapter 7, or as soon as one year after filing a Chapter 13. FHA and VA-insured mortgage loans can be had as early as one year after filing either bankruptcy petition. Normal consumer credit, such as revolving charge accounts or credit cards, will be much more difficult to secure, as they are determined by the credit standards of the individual lenders.
Delete Bankruptcy from your credit report (legally!)
If you’re credit has some issues, and you want results a little faster, you might check out a service like Lexington Law. It’s not going to be free, but I’ve seen results that are pretty amazing. They have even been able to get Bankruptcies removed from people’s credit. I’m planning on trying them out in a few months.
{ 10 comments… read them below or add one }
I applied to Chapter 7 bankruptcy approximately nine years ago.
Two weeks ago I went to a furniture store for credit, and bankrupt
appeared on my credit report, therefore I was denied. How long
will bankruptcy appear on my report?
Thank you
Bankruptcy 7 will stay on your credit report for 10 years from date of discharge. A Bankruptcy 13 only stays on 7 years. That is why I am choosing to do debt settlement myself; it avoids the public record of a bankruptcy but will negatively affect my credit for a few years.
I just got discharged from a Chapter 7 Bankruptcy and less than 3 months later, I got approved for a car loan. The rate is high, but I was told by several people that if I pay on time, am very careful with my credit, I can refinance the loan at a lower rate,probably within the year. Several lenders have already told me they look at the whole picture post BK, not just the BK itself. If you are racking up a ton of new charges, have late payments, etc, plus the BK, you are going to have a much tougher time getting credit.
The comment concerning the amount of time before being allowed to file another Bankruptcy is incorrect. You can file a Chapter 7 once every 8 years, not 7. However, you could file a Chapter 13 four years later if you are trying to discharge debt, or sooner if you are trying to stop something like a foreclosure. Further, you are incorrect that Chapter 13 doesn't allow people to discharge debt. That may be true for some people, however, many people only pay back pennies on the dollar. Further, for some people you can cram down the value of a car loan to reflect market value as opposed to what i owed and in some cases wipe out a second mortgage.
You should be careful with these descriptions, as a little bit of knowledge can be dangerous.
I’m only 22 and I think its time for me to file a #7. Only because where I life is so high even just to help. The cost of living is high and at 22 I don’t have a set in stone career just a nice. Job. so I owe a lot of ppl and sad to say others used my social so I owe becaause of that. Not to mention student loans. So is it best that I do it now since I’m only 22 or would it b a bad idea because of my age?
All you people should pay your debts.
Most people don’t file bankruptcy because they don’t want to pay their debt!! Unfortunatly! Life Happens….. unforseen events take place…spouses die….people are laid off…spouses leave the marriage….you get ill…your family member gets ill….you get in a car accident and loose a limb…..your sister gets diagnosed with terminal cancer (and you need to help) just to say a few… So don’t be so quick to be critial John…you obviously haven’t had too many misfortunes..good for you, you are a lucky one. We never expect these things to happen and all the planing you can do, doesn’t always help!
John, Let me tell you something. Last year we baught a car from jdbyrider to get my daughter to the hostpital for her medical treatment because our car blew up. (she will need a liver transplant) Then my husband had a heart attach with nomedical coverage(they dont offer it where they work) hes only 34. So now we still have the car but we haver to choose between keeping the car andpaying our utilities. Do you think that this is what we want to be thinking about right now? No, we want to be spending time with our precious 11 year old and not worrying about all the other shit! Some people are asses.
Good Evening John,
I believe your comment was everyone should pay their debts…..Being that you are very fortunate and seem very concern….what people should do….let me tell what you should do: Humble yourself because though you may be fortunate you are not perfect.
Seek wisdom before you speak. Most importantly: Learn to forgive your debtors as one day you will seek forgiveness…
John’s comment may have been blunt, but we all know that there are people who do file for bankruptcy — even chapter 7 — simply because they live way beyond their means. I personally know someone like that who just filed for chapter 7. My heart goes out to people who are in trouble due to circumstances beyond their control, and I’m glad that bankruptcy exists as an option to help them. But let’s all admit that some people are not honest when they claim that circumstances are beyond their control. These are the people who ran up debts on unnecessary things, and their selfishness and unwillingness to pay up results in higher prices for everyone. You can’t blame John for being irritated with them.