Have you ever felt overwhelmed by debt but were unsure what to do? Maybe this feeling even left you debating if bankruptcy was the right option for you.
Bankruptcy is a potential option to stabilize your finances, but is it the best way to go? Understanding what bankruptcy is, how it will affect other aspects of your finances, and the other potential options out there for you will help you make a more informed decision about which path you would want to consider taking.
Let’s take a closer look at bankruptcy and see if it is the right option.
How Bankruptcy Affects Credit
Filing bankruptcy may help your current financial situation, but it will have a negative impact on your credit. Bankruptcy displays to future potential creditors that you have difficulties with your ability to handle your debt.
Your credit is affected in the following ways when filing for bankruptcy:
- Payment Fulfillment: Bankruptcy means you will not be paying your debts in full as you originally agreed to.
- Public Records: Lenders can see in the public records that you have filed for bankruptcy when applying for a new credit.
- Steep Interest Rates: If you do get approved for a loan or credit, you may face heightened interest rates or unfavorable terms to your agreement because of the bankruptcy.
The type of bankruptcy you file will determine how long it will take to be removed from your credit report.
Types of Bankruptcy
There are two different types of bankruptcy that individuals may apply for: Chapter 7 and Chapter 13. Here are some key points for each type of bankruptcy option:
- Chapter 7: Chapter 7 bankruptcy provides lenders with a ‘clean slate’ with their debt. During this bankruptcy process, the court assigns a trustee to supervise the sale of specific assets to pay your lenders. There are assets that are exempt from this process, such as your car. After this part of the process, any remaining debt is eliminated when the bankruptcy is discharged. Chapter 7 bankruptcy remains on your credit report for ten years.
- Chapter 13: Chapter 13 bankruptcy is a rearrangement of your debts. This rearrangement is to help make payments more affordable for you to pay on your debts. With Chapter 13 bankruptcy, the payment plan is structured over a term of 3-5 years, and the bankruptcy is discharged upon completion. Chapter 13 bankruptcy typically remains on your credit report for seven years.
If you are considering bankruptcy, we suggest contacting an attorney with experience who can guide you through the process and help you make the best decision possible.
How Long it Takes to Rebuild Credit
Just because bankruptcy remains on your credit report for 7-10 years does not mean that your credit won’t improve during the process.
When filing for bankruptcy, the start date for your credit report is the date that you initially file for it. Unlike other debts, bankruptcy cannot be removed by your personal request or when paid off, unless it is on your report in error.
If you are consistent with your payments during bankruptcy and follow the process that was established for you, you will typically start to see an improvement in your credit within the first 12-18 months.
Alternative Options to Bankruptcy
There are alternative options to bankruptcy to consider based on the amount of debt relief you need. The following two alternatives may be better options for you and may not have as big of an effect on your credit:
- Debt Consolidation: If you have good or excellent credit, this may be a viable option for you. Debt consolidation allows you to combine multiple debts into one loan and pay only one monthly payment. This could help lower interest rates and monthly payments overall.
- Debt Settlement: This option is the final consideration before looking to bankruptcy. Typically, debt settlement will result in a company helping manage and negotiate your debts. Most companies charge upfront fees, while some also include recurring fees to help manage your debt. Debt settlement companies will collect a monthly payment from you and negotiate with your creditor as more funds build in your account. During this timeframe, you will be advised not to make payments on these accounts, which could have a negative effect on your credit.
Other alternative options that you can consider to help you with debt relief are credit counseling and debt management plan. Before making a decision, thoroughly research the pros and cons of each option to help determine what the best path is for you and your situation.
How We Can Help
At Improve Credit LLC, we set ourselves apart from other credit repair services because we get the job done right the first time and we help educate you every step of the way. Our services include personal credit repair, business credit and repair, credit monitoring, financial counseling, and identity theft.
You aren’t just a number with us, you are family, and we won’t rest until your credit is where it should be! Contact us by phone (704) 877-8739 or email (firstname.lastname@example.org) to speak with one of our nationally award-winning consultants today.