One of the biggest concerns consumers have when it comes to filing for bankruptcy is how long will the bankruptcy remain on their credit report. While a bankruptcy does hurt a person’s credit score, the effect it has depends on several different factors. Ultimately, it depends on the type of bankruptcy being filed and the financial habits exercised by the consumer after the case is over.
Chapter 7
A Chapter 7 bankruptcy case will stay on a consumer’s credit report for ten years from the date of filing. A Chapter 7 bankruptcy case is also known has a liquidation bankruptcy. This form of bankruptcy is normally used by people who have defaulted on their financial obligations and fall below a certain income threshold.
In a Chapter 7 bankruptcy case, the bankruptcy trustee has the authority to liquidate the borrower’s nonexempt assets and use them to pay down qualifying debts. The remaining debts, which are mostly unsecured ones, are discharged. Chapter 7 forgives debts including credit card debts, medical bills and unsecured personal loans. Certain debts, including taxes, criminal fines, child support, spousal support, and student loans, are not discharged usually in a Chapter 7 case. Not all consumers can pursue a Chapter 7 case, however. They must first pass a means test to ensure that their income and asset-to-debt ratios satisfy the requirement to file for Chapter 7 bankruptcy.
A consumer’s credit score can drop by as much as 200 points after filing for Chapter 7 bankruptcy. However, the alternative can be much worse if bankruptcy is not filed and the consumers ends up with multiple defaults and collections on his or her record. By exercising good financial habits over time, a person’s credit score can certainly be rebuilt.
Chapter 13
Chapter 13 bankruptcy is also referred to as a reorganization or wage earner’s bankruptcy. It is commonly utilized by filers who earn too much to be able to qualify for Chapter 7 bankruptcy. Under a Chapter 13 bankruptcy case, the filer works with the bankruptcy trustee to create and execute a payment plan to pay back qualifying debts over the course of three to five years. At the end of that period, the remaining debts are discharged and wiped clean. However, that bankruptcy will remain on the filer’s record for a certain length of time. A Chapter 13 bankruptcy case will stay on the filer’s credit report for at least seven years. So long as the consumer exercises good financial habits, he or she can steadily rebuild their credit.
If you have questions on this topic or are in financial crisis and considering filing for bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.
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