While bankruptcy can be a life-changing process for those seemingly drowning in debt, it’s critical to understand that this process is not without its disadvantages. In general, the most substantial downside to declaring bankruptcy is the impact it can have on your credit score. However, it’s critical to understand that a filing will not remain on your report forever. As such, if you’re unsure why bankruptcy has such a significant impact and how long it will reflect on your credit, you’ll want to keep reading. The following blog explores what you should know about these matters and the importance of working with a Memphis, TN consumer bankruptcy lawyer to help you explore your legal options and fight for the best possible outcome.
What Impact Will Bankruptcy Have on My Credit Score?
When you declare bankruptcy, you are essentially stating that you are unable to repay the debt you’ve accumulated. As such, depending on which chapter you file under, your debts can be repaid through the liquidation of your assets or a lengthy repayment plan.
Declaring bankruptcy will significantly impact your credit score. Generally, this is because your payment history makes up the largest individual portion of your credit score at 35%. As such, declaring that you are unable to pay the debt that you’ve acquired will drastically reduce your credit. Typically, you’ll find that those with above-average or excellent credit scores will experience the largest drop at up to 200 points, while those with average credit scores will typically see a drop between 130 and 150 points after they’ve declared bankruptcy.
In addition to the reduction of your credit score, bankruptcy is often a red flag for lenders. You’ll find that applying for loans or trying to open accounts after bankruptcy can be difficult, as this renders you a high-risk borrower. As such, you’ll find that you will likely be denied the opportunity to take out loans, and in the event you are approved, the loan terms may include astronomical interest rates.
How Long Will This Impact Remain?
Because your payment history is the most important aspect of your credit score, lenders are able to see far back into your borrowing history. As such, you’ll find that a Chapter 7 filing will remain on your credit report for ten years, while a Chapter 13 will remain on your report for seven years. It’s important to understand that this will hit your account on the day that you declare. Additionally, its impact will lessen over time as you work to rebuild your credit and build a strong financial foundation.
You should note that once your bankruptcy case has reached the seven or ten-year mark, it will automatically be removed from your credit report. This means that you do not have to do anything to have this removed from your credit history. However, you should check your report to ensure it has been erased. If it has not been, you’ll need to dispute the continued inclusion of this information with the reporting agency.
As you can see, bankruptcy can be an incredibly overwhelming and difficult process to navigate. As such, it’s strongly recommended to work with an experienced attorney to discuss your legal options. At the Arnold Law Firm, we understand how difficult it can be to deal with debt, which is why we will guide you through the bankruptcy process so you can fight for the best possible outcome for your circumstances. When you need help, contact our team today.
