Bankruptcy offers substantial relief to those suffering from financial hardship due to debt. However, it is not completely without negative impacts. Your bankruptcy credit history in Montgomery County, TX will be unfavorable at first, but in time, the impact dwindles—especially if you pay your bills on time. Here is an overview of how bankruptcy affects your credit.
Your credit history
Late payments, foreclosures, collections, public records and Chapter 13 bankruptcy filings stay on your credit history for seven years. If you file a Chapter 7, that report remains on your history for 10 years.
This may seem hopeless, but these items mean less with time. If you are late two times with payments and then keep them on time for a year, your credit will improve. Likewise, the impact of a Chapter 7 bankruptcy will lessen starting one to five years after you file. While time may not be on your side with most black marks on your credit, bankruptcy will matter less.
Most people who file bankruptcy have low credit scores already. If your credit score is already in the 400 to 600 range, you will not experience a significant drop.
When you file a Chapter 7 bankruptcy, debts listed in that filing will be indicated as “included in bankruptcy” on your credit report with a balance of $0. Once your Chapter 7 bankruptcy concludes, debts will be noted as discharged. These notes, plus the bankruptcy filing, will remain on your credit report for 10 years.
Chapter 13 is different, since it involves a payment plan that lasts three to five years. Once you are done with that plan, your remaining debts are discharged, and that will be noted on your credit report. These notes disappear after seven years, and if your credit report contained delinquent debt before you filed, those accounts may disappear sooner.
The long term
Bankruptcy affects your credit for as long as it remains on your report, but its effects diminish over time. If your score was very low (below 500), you will likely see your score recover even while the bankruptcy filing remains listed. Many people report seeing credit offers within a year of discharge, and some people even qualify for mortgages within two to three years of filing for bankruptcy. Once the bankruptcy is no longer on your report, pay all your bills on time and you will see even greater improvements.
There are steps to take to ensure bankruptcy does not have a greater effect than normal on your credit report. As your debts discharge, check to make sure all debts are noted as “discharged” or “included in bankruptcy.” File claims if you see any mistakes.
Consider getting a secured card to rebuild credit. These require you to put down a deposit, so they actually have more in common with a debit card. However, they also report to the credit bureaus every month, so you will build credit without incurring debt.
Finally, continue reviewing your reports, especially after the seven to 10 years concludes. Since bankruptcy has both impacts and benefits, you want to make the most of the benefits and ensure all negative accounts are off your reports.
James R. Jones, Attorney at Law is a bankruptcy attorney serving Montgomery County, TX. For assistance with bankruptcy credit history and other bankruptcy matters, contact the office today to schedule a consultation.