Most people in America believe that their credit will be destroyed by filing bankruptcy or from foreclosure. It is true that a bankruptcy filing will stay on your credit report for 10 years for a Chapter 7 and seven years for a Chapter 13. The good thing is the further away from the bankruptcy filing date, the less impact the bankruptcy will have on their credit score. So when someone asked the question, will my credit be destroyed forever by filing bankruptcy or foreclosure? A good answer would be, temporarily but not for long.
While filing bankruptcy is technically bad for your credit score, after filing the debtor will actually have better debt to income ratios which is a big factor in getting financing. Many times after filing Chapter 7 bankruptcy, if the debtor does not reaffirm a car or home loan, the debtor will be debt free or close to it. When an individual is looking for financing this carries a lot of weight as long as the individual is employed. In fact, there are many creditors that offer debtors credit right after filing for bankruptcy. The debtor needs to be very careful because many of these loans have high interest and high fees added in the mix. But if debtor's not careful they can put themselves in a much worse position than they just got themselves out of.
When a debtor files for bankruptcy they should seriously look at any debt they might want to keep and reaffirm. This should be discussed seriously with the bankruptcy attorney as they should know the debtor's financial situation. Many times after filing for bankruptcy the debtor might decide that the car that they decided to keep was too much to afford and now they want to give it back. The bad news is, if the discharge has already gone through and the bankruptcy is finished, the only way the debtor can get out of that automobile loan is if the creditor will let them. This is why it's very important to do some serious soul-searching with a bankruptcy attorney to try and take a snapshot into the future to see if this kind of loan will be a burden on the debtor financially. If the debtor is upside down on the vehicle, if it is included in the bankruptcy filing that deficiency will be wiped out in the discharge. If the debtor waits till after the discharge, the debtor will be liable for any deficiencies if they try and give the vehicle back.
There are a few ways to speed up the improvement of your credit scores after filing bankruptcy.
One of those ways is to pay all your bills on time. Make sure you always keep your credit card balances below 50% of available credit. After filing bankruptcy or foreclosure, remember, the longer you keep your job the better the chance to be able to get a mortgage. Usually, car loans are easier to get that come with higher interest rates after bankruptcy or foreclosure. Try to avoid applying for a large number of credit cards, especially immediately after filing for bankruptcy. It will undermine the debtor's score with a large number of credit inquiries.
The bottom line is, the longer the debtor has a history of paying bills on time, better than track record they will have. Filing bankruptcy can be a lifesaver for many people giving them a second chance that they deserve. Losing your house to foreclosure is not the end of the world. It's only a house and can be replaced. When trouble arises all these matters should be discussed with a bankruptcy attorney to avert further damage.
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