Many Mississippi residents seek debt relief through bankruptcy. Bankruptcy is a legal process that relieves an individual of all or most of their financial debt obligations. Filing bankruptcy lessens stress over money, bills and constant creditor calls, but it also has another impact.
Filing bankruptcy yields a fresh start, but it does affect your credit score by as much as a 200-point drop in some cases. It’s likely that if you’re considering bankruptcy, your credit may already be at risk.
Filing Chapter 7 or Chapter 13 bankruptcy
There are two choices for most bankruptcy filers, and many people filing for the first time will opt for a Chapter 13 debt repayment plan, which has a conversion option for filing Chapter 7.
Chapter 7 bankruptcy absolves all or most debt, such as medical bills and credit cards. Some debts, such as child support and certain taxes, are non-dischargeable. At the same time, some luxury items like jewelry and non-primary properties are generally non-exempt assets that can be used to pay off some of your obligations.
A Chapter 13 repayment plan is an agreement to pay a reduced rate to creditors like mortgage holders, auto finance loans, and bank loans over a period of three or five years. If you cannot continue paying, you can file for a Chapter 7 conversion, including additional fees and court costs.
How long is your credit score affected by bankruptcy?
A bankruptcy can remain on your credit for up to ten years. During this time, you can rebuild your credit and increase your score. After two to four years, more lenders will likely extend your credit.
Protecting your credit score from adverse impact is crucial after filing for bankruptcy. It’s wise to rebuild slowly, make all payments on time and be cautious about taking on new debt.