Some Colorado residents may be hesitant to apply for debt relief because they worry that it will ruin their credit scores. Filing for bankruptcy affects credit. However, it is typically a temporary condition, and in many cases, bankruptcy lays the groundwork for restoring financial stability so that a person can rebuild credit and wind up in a better financial position than he or she was before filing for debt relief.
Why does filing for bankruptcy affect a credit score?
When a person makes monthly credit payments on time, it typically helps to increase his or her credit score. If a person experiences a financial crisis and files for bankruptcy, he or she will no longer be making payments as they were prior to bankruptcy. Of course, the simple fact of filing for bankruptcy affects one’s credit score.
Chapter 7 bankruptcy remains on a credit report longer than Chapter 13
Two of the most common types of consumer bankruptcy are Chapter 7 and Chapter 13. Each has its own set of eligibility requirements, and the two programs differ in several ways. Chapter 7 bankruptcy usually involves liquidation of assets. This type of bankruptcy remains on a credit report for 10 years. Chapter 13, on the other hand, is more of a payment restructuring program, and it only shows on a credit report for up to seven years.
Rebuilding credit after bankruptcy
There are several ways to rebuild a credit score after discharging debts through bankruptcy. It is helpful to research ahead of time and discuss debt relief and credit-rebuilding optionswith someone who is well-versed in such issues, especially regarding how a specific program might affect a credit score. An experienced Colorado bankruptcy law attorney can review a case and make recommendations as to which option best fits one’s needs and financial goals.