Submitted by Rachel R on Thu, 04/30/2015 - 10:06am
How bankruptcy can affect your credit score
Image Source: Flickr User GotCredit
Not every bankruptcy filing is seen all the way to its conclusion. For instance, if you file a Chapter 13 to try and stop a foreclosure while you refinance your home, you may not want to stick with the filing once your mortgage crisis resolves. Many consumers file to save their home, and then work things out or decide to give up on the home and then let the Chapter 13 bankruptcy fall by the wayside and stop making payments. It's important to understand that this bankruptcy will still affect your credit. Here's what you need to know.
How Bankruptcy Affects Your Credit Score
When you file bankruptcy, your credit score will take a hit. That's a fact. However, if you're deep in debt you can't pay, your credit score is already taking a beating every month you miss payments to creditors. It will be further impaired if a creditor sues you and obtains a judgment. The bottom line is, wallowing in a debt crisis will see your credit on a decline to rock bottom. When you file bankruptcy, your credit will take a one-time dip then will begin to rebound because you won't have delinquent accounts dragging it down every month. From there, you can rebuild your credit strategically. This is often a better outcome than continuing to stay in endless debt with no resolution in sight.
How a Dismissed Bankruptcy Affects Your Credit Score
When you file bankruptcy, whether a Chapter 7 or a Chapter 13, all accounts included in the bankruptcy filing will be noted on your bankruptcy as part of the filing. If the bankruptcy is dismissed for any reason, the accounts will “reactivate” because you are no longer protected from collections efforts. Usually, it is Chapter 13 bankruptcies that are dismissed for not sticking to the repayment plan. However, in some cases, a Chapter 7 bankruptcy may be dismissed by your request prior to discharge or if the bankruptcy judge or Trustee finds your case is flawed and rules that you're not entitled to bankruptcy protection, but this is rare. Even though the accounts that were in bankruptcy are once again eligible for collection once your case is dismissed, that doesn't mean the bankruptcy filing is erased from your credit report.
How Long Does a Bankruptcy Entry Affect Your Credit?
A bankruptcy will appear on your credit report for up to 10 years – even a dismissed bankruptcy. The dismissal will also be noted on your credit report, but not the reason. There is no undoing the bankruptcy, though, in terms of credit reporting, so it will continue to affect your score. Because of this caveat, it's best to carry on with your bankruptcy (in most cases). For instance, if you file a Chapter 13 to try and save your home from foreclosure, resolve it and no longer need the bankruptcy, you can always convert the case to a Chapter 7 to wipe out your unsecured debt. Since your credit has already taken the hit for the bankruptcy, it may be a good strategy to take advantage of the protection available to you.
To find out more about how bankruptcy can help you deal with your debt crisis and get the financial fresh start you deserve, contact the North Carolina bankruptcy experts at the law offices of John T Orcutt. We have locations in Greensboro, Raleigh, Fayetteville, Wilson, Durham and Garner. Call +1-919-646-2654 for a free consultation today. Be sure to ask about our zero down bankruptcy specials.
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