Bankruptcy is meant to provide a fresh financial start for debtors. For most Americans, one major illness or extended period of unemployment can wipe out their savings. It’s easy for debt to start piling up, whether it’s from irresponsible spending or just trying to survive. Bankruptcy helps debtors reorganize their debt and pay off creditors as much as possible. At the end of the process, their debt is discharged and the debtor is legally free of those financial obligations.
However, there’s one side effect that you need to be aware of: bankruptcy will stay on your credit report for 10 years after a Chapter 7 discharge. Here’s what you need to know about your credit score after a discharged bankruptcy in The Woodlands, TX.
How chapter 7 bankruptcy works
When you file for Chapter 7 bankruptcy, you have to either pass the means test (showing that you make under the median income for the state and cannot pay back your debts) or qualify under the other limited exceptions. When you file, you list all of your assets. The bankruptcy trustee will oversee this process and ensure that they are all sold off. The proceeds are used to pay off your creditors, and at the end, your debts are discharged.
However, as noted above, the fact that you filed for bankruptcy will stay on your credit report for 10 years after the debts have been discharged.
What shows up on your credit report
You might hope that your credit score after bankruptcy in The Woodlands, TX will go up as soon as your debts are discharged, but it’s not an automatic cure-all. Your credit report is designed to show lenders that you’re a safe risk to take on, so naturally they’ll want to know that you had to file for bankruptcy.
After your debts are discharged, your creditors will update their report to show that there was a bankruptcy action and subsequent discharge. The amount owed should be reduced to zero, but the history of the accounts will remain on your report. (It’s always wise to get a copy of your credit report a couple months after discharge to ensure that this was updated appropriately.)
If you had delinquent payments on your account, those will be removed seven years after the original delinquency date. If your accounts were paid on time before bankruptcy, they’ll be removed seven years from the date of filing your bankruptcy proceeding.
Take heart: you’re not doomed to a bad credit score for the full 10 years. You will be able to rebuild your credit over time, which means your bankruptcy filing will have less of an impact on lenders’ decisions.
Bankruptcy is a major decision that isn’t without drawbacks. Most people are worried about their credit score after a discharged bankruptcy in The Woodlands, TX, but are relieved to hear that it’s not a be-all, end-all bar to credit.
James R. Jones, Attorney at Law can help you with your bankruptcy case. Call today for a consultation.