When people don’t have the means to pay back their loans, they have the option to declare bankruptcy. Bankruptcy is a legal process that helps you eliminate or reduce a loan that you may not be able to pay.
The court will most likely give you two options to account for your loans. Chapter 7 will liquidate your assets and pay lenders with the proceeds. However, if the assets’ sales don’t cover the loan amount, you won’t have to pay additional installments. Chapter 13 holds the customers responsible for paying a portion of their debts.
Either way, bankruptcy can significantly affect your credit score. Here’s how:
Bankruptcy and credit score damage
Bankruptcy can lead to a significant drop in your credit score. While it’s not entirely impossible to increase your credit after the significant hit, improve your score will take time and perseverance. Filing for bankruptcy can also impact your ability to get a loan because it appears on your credit report for many years.
Some creditors immediately deny an application after seeing the big warning sign in past payments. Hence, while filing for bankruptcy can be a wise financial decision, it’s best to consult with a bankruptcy professional before going for it.
Bankruptcy on your credit report
How long a bankruptcy will appear on your credit report depends on the type of bankruptcy you choose to file. While chapters 7 and 11 appear on credit reports for 10 years, chapter 13 remains on it for 7 years. However, keep in mind the chapter 13 bankruptcy proceedings can take up to 5 years to finalize.
If you’re having trouble getting a loan after filing for bankruptcy, it may help you open up a secured credit card that you can back with cash credit.
Improving credit score after bankruptcy
You can increase your credit score after filing for bankruptcy with the following tips:
Make timely payments
When you pay your installments on time, your credit score will reflect that. It can tell lenders that you’re a responsible borrower who can manage their debts and pay on time.
Avoid applying for credit
Applying for credit may result in a hard inquiry on your credit report. This has the potential to lower your score further, damaging your credit score.
Work with a reputed credit repair specialist
Working with acredit repair expert can help you get helpful insights toimprove your score. At 007 Credit Agent, our credit repair experts help you remove inquiries from your credit report and improve credit score in 90 days!
We’ll help you remove and challenge the negative credit caused by collection companies such as Wakefield & Associates, Jefferson Capital Systems, Radius Global Solutions, and Enhanced Recovery Company. Reach out to our friendly customer representatives for more information.