How Does Bankruptcy Affect Your Credit Score?

S E O D W O H Y C T P U R K BA N R U O Y S AFFECT DIT C RE SCO R E S "NATHAN A BERNEMAN, APC

BERNEMAN LAW FIRM

Bankruptcy is a hotly debated topic for several reasons. So far this year, more than 50,000 Americans have filed for bankruptcy in the state of California. Across the US, that adds up to more than half a million people who turn to bankruptcy. The most common reasons that Americans pursue bankruptcy are because of medical debt, job loss, credit card misuse, divorce, and unexpected expenses.

How will bankruptcy affect your future? Will you ever be able to recover from bankruptcy?

WHAT IS CREDIT SCORE? WHY IS IT RELEVANT FOR YOU? Your Credit Score is just a statistical number that takes into consideration various factors in your credit history and reporting details to determine how financially viable or responsible you've been. It can include your lines of credit, payment of bills, length of credit, outstanding loans, and other factors when it associates a three-digit number with your name and social security number. The number usually ranges from 300 to 850. There are many scoring models, and each one can take into account different variables.

The general concept is that you are a lowerrisk investment if you have a good credit score. So, with a higher credit score, lenders and creditors may be more likely to offer you credit cards, loans, etc. With a poor credit score, those same financial institutions will decline your loan, or they may charge a higher rate of interest on your loan since you're a higher risk.

Effects of Chapter 7 on Your Credit Score The big difference between Chapter 13 and Chapter 7 Bankruptcy plan is that with Chapter 7, you are and your bankruptcy attorney is not required to propose a repayment plan. You are not required to pay back your creditors, but you may be required to surrender any non-exempt property to the bankruptcy court. Exempt property can include jewelry (depending on the value), as well as clothes, household items, etc. Non-exempt property can then be sold, and the money will be dispersed to creditors.

Effects of Chapter 11 on Your Credit Score Chapter 7 and Chapter 13 are cheaper and a quicker form of bankruptcy, but Chapter 11 usually involves larger sums of money. It allows you to reorganize your debt, and a bankruptcy attorney can help you determine if this option is the best one for you. This form of bankruptcy sets up a plan whereby the creditors aren't able to take action against the company or individual, while that person or organization develops a reorganization plan. That plan includes how the company will operate, and how the debt will be repaid. It also can include carefully laid out details about how the company will reduce assets and expenses to remain viable. Chapter 11 Bankruptcy still affects your credit, though it may not affect your score as much as Chapter 13 or Chapter 7.

Effects of Chapter 13 on Your Credit Score When you file for Chapter 13 bankruptcy protection with your bankruptcy attorney, that filing appears on your credit report and it impacts your credit score. Your credit score is probably already affected by late payments, high credit usage, and other derogatory factors. So filing for Chapter 13 bankruptcy may not affect your credit scores that much more. With Chapter 13 Bankruptcy, your bankruptcy attorney in Los Angeles will set up a monthly payment plan for up to 5 years. Based on that plan, you'll submit payments to the court-appointed trustee, who will disperse the funds to your creditors.

All forms of bankruptcy may remain as part of your credit report for 10 years, although some reporting agencies remove Chapter 13 reporting after seven years. Still, it will affect you somewhat no matter which form of bankruptcy you select.

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