Bankruptcy’s impact on credit scores
Filing for bankruptcy could be the appropriate decision for a Louisiana resident struggling with excessive debt obligations. Bankruptcy may allow the person to improve their finances and commit to a fresh start. However, bankruptcy will affect the filer’s credit rating for a set period of time.
Bankruptcy and credit scores
The duration of bankruptcy remains on a credit score depends on the chapter under which the debtor files. Chapter 7 bankruptcy remains on a credit report for ten years, while Chapter 13 remains on the report for seven. Once the time elapses, bankruptcy filings fall off a credit report, and the person’s score will adjust.
Chapter 7 involves liquidating non-exempt assets to pay creditors, with some remaining debt receiving a discharge. Chapter 13 consists of restructuring debt and making a payment plan to cover the remaining debt. These plans last three to five years. Since the debtor pays some obligations back, Chapter 13 does not last as long on a credit score as Chapter 7.
Negative marks other than Chapter 7 bankruptcy remain on a credit score for seven years. So, defaults on bills or late payments would stay on the report. Anyone worried about their credit score may review the reports to determine if all negative marks are accurate.
While bankruptcy can further mar a credit report, the protections afforded under the law could assist a debtor in many ways. Namely, filing for bankruptcy ceases collection actions. Persons concerned about evictions or foreclosures might greatly benefit from bankruptcy’s ability to assist.
Bankruptcy also provides an opportunity for a fresh financial start. Filing for bankruptcy typically requires completing mandatory credit counseling. Those who complete the course might better understand how to avoid falling into debt traps and other financial troubles after their bankruptcy proceedings end.