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The Effects of Chapter 7 Bankruptcy on Your Credit

Chapter 7 Bankruptcy
If you are hesitant to file for Chapter 7 bankruptcy for fear of what might happen to your credit, you should research bankruptcy a little bit to fully understand the effects it may have on your credit. To help you with your research, this blog will help you understand the basics of Chapter 7 and the effects it has on a person's credit.

The Bankruptcy Discharge Will Remain for 10 Years

The first thing to know is that after filing for Chapter 7 bankruptcy, the court will post the bankruptcy on your credit report. This will appear as a derogatory item and will remain on your credit report for 10 years from the date the court discharges your case.

While bankruptcy might seem like a bad thing to have on your credit report for 10 years, it may not affect you as much as you think it would. The reason for this is that most people who file for bankruptcy already have poor credit ratings when they file as a result of high debt-to-credit ratios and a history of late payments.

If your score is already low, it is probably considered bad or average. After filing for bankruptcy, the score will drop, but the category of credit you fall into is likely to remain about the same.

You Have Control Over Your Score 

You should be aware that as soon as the bankruptcy appears on your credit report, your score will drop anywhere from 130 points to 200 points. After this occurs, you have control over where it goes from there. In other words, you can take steps to increase your score, and you can start on this as soon as the court discharges your case.

Here are the three main ways you can improve your credit score after filing:
  1. Dispute errors on your credit report - If anything on your report is both inaccurate and negative, you should dispute the items to get them removed.
  2. Obtain new credit lines - Adding new credit lines is a great way to increase positive repayment history on your report. You can begin by applying for a secured credit card.
  3. Be responsible with your finances - Finally, you will need to use responsible financial management from here on out, which means you must pay all your bills on time and always pay credit card balances in full when the payments are due.
Following these three tips will help you improve your score tremendously. Most people see an increase in their scores after just a few months when following these principles.

You Can Qualify for Loans Faster Than You Think

The final thing to understand about bankruptcy and your credit is that you will likely qualify for loans faster than you think. If you begin working on your credit score immediately, within just two years, you will probably have credit that is good enough to qualify for a mortgage loan.

You will also qualify for a car loan within only a few months of filing for bankruptcy, and you should qualify for regular credit cards within a year.

If you use your credit lines wisely and repay all your bills on time, you can build your credit score and obtain great credit. If you consistently do this for 10 years, the bankruptcy posting will fall off your credit report, and your credit should be good enough to qualify for any loan you might want.

In certain situations, filing for Chapter 7 is the best thing you can do, but you should make sure it will offer the relief you need before you file. To learn more about this, contact Flowers Law Firm. We can give you the answers and advice you need to make a wise decision about filing for bankruptcy.