You may be considering bankruptcy to break free from your debt. But you may be hesitant due to fears of what it will do to your credit score. While it is true that filing bankruptcy will impact your credit report, allowing your debt to go to collections may be even worse.
There are many misconceptions about bankruptcy and credit that prevent people from filing. In the long run, declaring bankruptcy can be the decision that brings you to better credit. Here is an analysis of the impact of bankruptcy and best practices for restoring credit.
Chapter 7 bankruptcy
If you complete a Chapter 7 case, the bankruptcy will remain on your credit report for as long as 10 years. Additionally, your discharged debts will begin to drop off your report as the years go by. You can expect the bankruptcy to have less and less of an impact on your credit with time.
Chapter 13 bankruptcy
A Chapter 13 bankruptcy will be on your report for as long as seven years. But due to the fact that debts may remain active during the repayment plan, it may take longer for the discharged debts to go away.
Improving your credit after bankruptcy
Even though your credit score may take a hit because of bankruptcy, it is relatively simple to rebuild. These steps will get you on track to having a good credit score:
- Check your credit report periodically and report any mistakes.
- Apply for a secured credit card.
- Apply for a store credit card.
- Get a credit-builder loan.
- Sign on as an authorized user on someone else’s credit card.
Be mindful and careful as you take on new credit. Only take on as much as you can truly afford. Making payments on time and slowly building your way back up is the best way to improve your credit score after filing for bankruptcy.