Individuals deal with debt in different ways. For some, the knowledge that they are not going to be able to keep up gives them the freedom to simply stop making payments, allowing their credit rating to fall rapidly. Others work hard to maintain their positive credit to the very end, making payments in a timely way and paying as much as they possibly can in order to prop up their score.  But when you have to face up to the reality that your debts surpass your ability to pay, you are also going to need to deal with the fact that your bankruptcy filing is going to have a terrible impact on your credit.

A bankruptcy — and especially a Chapter 7 bankruptcy – will wipe out your debts and give you a fresh start. Unfortunately, it will also wipe out the credit score that you’ve worked so hard to maintain. Filing for bankruptcy will be reflected as significant downward pressure on your credit score. How long its impact lasts depends on several different factors, including the type of bankruptcy you file for and what you do to rebuild your credit following your filing.

A Chapter 7 bankruptcy will show up on your credit report for as long as ten years from the date of your first filing, while Chapter 13 may only show for around seven years. Within a few years of discharging your Chapter 13 debt, it will disappear from your credit score and give you the chance to start climbing back to fiscal stability. But the longer your bankruptcy is reflected on your credit, the less impact it will have and the more impact timely payments you make will have. The same is true for establishing new credit via small installment loans or secured credit cards and keeping your credit card balances under 30% utilization.

Because under Chapter 13 bankruptcy debtors make payments on their debt, they have less of an impact on credit scores, but that doesn’t change the fact that a bankruptcy filing will have a significant impact. How much of an impact is hard to predict, but it is important to remember that the debts that existed prior to your filing will still show on your credit report, with some persisting for several years.  To offset this effect, apply for credit cards, even if it means putting down an upfront security deposit and then work at rebuilding your credit. It will take patience and diligence, but it is possible and well worth your time to reestablish yourself as worthy of a lender’s trust.

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