How much will bankruptcy hurt my credit score?
If you are asking yourself this question, obviously, you are not doing so lightly. No one wants to be in a position to have to consider bankruptcy. But, if you are in this unfortunate position, one question you have almost undoubtedly asked yourself is "how much will bankruptcy hurt my credit score?" The full answer to this question depends on what type of bankruptcy you file, but it will generally be in the 160 to 220 point range and can stay on your credit report for as long as ten years.
Of course nothing about a credit hit like this sounds appealing but what can be even more devastating is getting further and further behind without a plan or course of action to deal with your debts. The main question one needs to ask even more than what's the credit repercussions going to be?...Is what type of debt help plan is going to eradicate my debts most effectively? When considering bankruptcy, one really needs to weigh that option out heavily against debt settlement or a debt relief program.
Re-establish and rebuild your credit
If you find that bankruptcy is the way to go, then just like someone who's graduated from a debt relief program, you are going to want to re-establish and start rebuilding your credit. A secured credit card is the easiest type of credit card to get after you have filed bankruptcy since the card is secured by money you give the creditor as collateral. Although, you will typically pay a small fee for a secured credit card, it is an easy first step in rebuilding your credit. Department store cards are sometimes easier to get because of their high interest rates. Auto loans, with enough of a down payment, can also be somewhat easy to get even after someones filed bankruptcy.
No matter what type of credit you use to rebuild your credit, the first and foremost rule is use this credit wisely and responsibly. Do not max out any of your lines of credit and do not be late, and especially, do not miss a payment. If you have months that it's hard to make your payments on time, then chances are, you're not using your credit wisely.
Filing for Chapter 7 bankruptcy
With a Chapter 7 bankruptcy, your debt is wiped out. The types of debts that you can include in a Chapter 7 bankruptcy include medical bills, credit card bills and unsecured loans such as bank loans or loans through a loan company. In rare exceptions private student loans may be able to be included. Private student loans could only be accepted if your financial hardship is severe and spans a significant period of time. If it's assessed that you have no ability to make payments on your private loans, then there is a chance you could include them.
In order to qualify for a Chapter 7 bankruptcy, you must meet the means test guidelines that are based on the Census Bureau data. This includes where you live, your income, and how many dependents you have. If you do not meet the requirements and are above the minimum income level based on these factors, you will not qualify for Chapter 7. The only exception to this is if you can provide proof that you still do not have enough income to make monthly payments of a certain percent to your creditors.
In a chapter 7 you will usually lose some assets during the process. They will be sold and used to pay toward your outstanding debts to your creditors. You can file for exemption through the federal or state government but the exemptions have limits.
Filing for Chapter 13 bankruptcy
Chapter 13 is a longer process than a chapter 7 bankruptcy and is more limited on how much debt you can include. Although, easier to qualify for, it probably won't save you as much as working out a settlement through a reputable debt relief company. Like debt relief, you must agree to pay back some of the debt over a five year period, but in the case of chapter 13 you may have to agree to pay back all of the debt. This will be based on the type of debt you include in your chapter 13 filing.
If you set up a chapter 13 repayment you must keep up with the payments or your case will be dropped and you will have surrendered any money paid in. This will then open the door for the creditors to come after you personally for any unpaid balance. The good news is that you won't lose any personal assets in a chapter 13 like you will in a chapter 7 as long as you keep up with your payments.
Making a decision between debt settlement or bankruptcy
Under certain circumstances bankruptcy might make more sense, but in most cases like for settling credit cards or settling private student loans debt settlement may be the better choice. The reason is because it is harder to qualify for a chapter 7 bankruptcy and a chapter 13 doesn't really accomplish a lot more than debt settlement if even as much. It is, however, more harsh of a credit impact than debt settlement. There are definitely cases where chapter 7 is the best and probably only realistic choice, though. The best thing you can do is make a good evaluation of your situation and compare it to what makes the most sense for you.